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A dynamic programming approach for pricing options embedded in bonds

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  • Ben-Ameur, Hatem
  • Breton, Michele
  • Karoui, Lotfi
  • L'Ecuyer, Pierre

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  • Ben-Ameur, Hatem & Breton, Michele & Karoui, Lotfi & L'Ecuyer, Pierre, 2007. "A dynamic programming approach for pricing options embedded in bonds," Journal of Economic Dynamics and Control, Elsevier, vol. 31(7), pages 2212-2233, July.
    • Handle: RePEc:eee:dyncon:v:31:y:2007:i:7:p:2212-2233
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    References listed on IDEAS

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    3. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    4. Hull, John & White, Alan, 1990. "Valuing Derivative Securities Using the Explicit Finite Difference Method," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 25(1), pages 87-100, March.
    5. Ananthanarayanan, A L & Schwartz, Eduardo S, 1980. "Retractable and Extendible Bonds: The Canadian Experience," Journal of Finance, American Finance Association, vol. 35(1), pages 31-47, March.
    6. Robert R. Bliss & Ehud I. Ronn, 1995. "To call or not to call?: optimal call policies for callable U.S. Treasury bonds," Economic Review, Federal Reserve Bank of Atlanta, vol. 80(Nov), pages 1-14.
    7. Darrell Duffie & Jun Pan & Kenneth Singleton, 2000. "Transform Analysis and Asset Pricing for Affine Jump-Diffusions," Econometrica, Econometric Society, vol. 68(6), pages 1343-1376, November.
    8. Farshid Jamshidian, 1996. "Bond, futures and option evaluation in the quadratic interest rate model," Applied Mathematical Finance, Taylor & Francis Journals, vol. 3(2), pages 93-115.
    9. Brennan, Michael J. & Schwartz, Eduardo S., 1980. "Analyzing Convertible Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 15(4), pages 907-929, November.
    10. Courtadon, Georges, 1982. "The Pricing of Options on Default-Free Bonds," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 17(1), pages 75-100, March.
    11. Dothan, L. Uri, 1978. "On the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 6(1), pages 59-69, March.
    12. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "An Intertemporal General Equilibrium Model of Asset Prices," Econometrica, Econometric Society, vol. 53(2), pages 363-384, March.
    13. Qiang Dai & Kenneth J. Singleton, 2000. "Specification Analysis of Affine Term Structure Models," Journal of Finance, American Finance Association, vol. 55(5), pages 1943-1978, October.
    14. Chan, K C, et al, 1992. "An Empirical Comparison of Alternative Models of the Short-Term Interest Rate," Journal of Finance, American Finance Association, vol. 47(3), pages 1209-1227, July.
    15. Richard, Scott F., 1978. "An arbitrage model of the term structure of interest rates," Journal of Financial Economics, Elsevier, vol. 6(1), pages 33-57, March.
    16. Vasicek, Oldrich, 1977. "An equilibrium characterization of the term structure," Journal of Financial Economics, Elsevier, vol. 5(2), pages 177-188, November.
    17. Vasicek, Oldrich Alfonso, 1977. "Abstract: An Equilibrium Characterization of the Term Structure," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 12(4), pages 627-627, November.
    18. Brennan, Michael J. & Schwartz, Eduardo S., 1977. "Savings bonds, retractable bonds and callable bonds," Journal of Financial Economics, Elsevier, vol. 5(1), pages 67-88, August.
    19. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," The Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-592.
    20. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-654, May-June.
    21. Hull, John & White, Alan, 1993. "One-Factor Interest-Rate Models and the Valuation of Interest-Rate Derivative Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 28(2), pages 235-254, June.
    22. Rabinovitch, Ramon, 1989. "Pricing Stock and Bond Options when the Default-Free Rate is Stochastic," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 24(4), pages 447-457, December.
    23. Barraquand, Jérôme & Martineau, Didier, 1995. "Numerical Valuation of High Dimensional Multivariate American Securities," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 30(3), pages 383-405, September.
    24. Marsh, Terry A & Rosenfeld, Eric R, 1983. "Stochastic Processes for Interest Rates and Equilibrium Bond Prices," Journal of Finance, American Finance Association, vol. 38(2), pages 635-646, May.
    25. Nelson, Charles R & Siegel, Andrew F, 1987. "Parsimonious Modeling of Yield Curves," The Journal of Business, University of Chicago Press, vol. 60(4), pages 473-489, October.
    26. Hans‐Jürg Büttler & Jorg Waldvogel, 1996. "Pricing Callable Bonds By Means Of Green'S Function1," Mathematical Finance, Wiley Blackwell, vol. 6(1), pages 53-88, January.
    27. Darrell Duffie & Rui Kan, 1996. "A Yield‐Factor Model Of Interest Rates," Mathematical Finance, Wiley Blackwell, vol. 6(4), pages 379-406, October.
    28. F. Jamshidian, 1995. "A simple class of square-root interest-rate models," Applied Mathematical Finance, Taylor & Francis Journals, vol. 2(1), pages 61-72.
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    Citations

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    Cited by:

    1. Ben-Ameur, Hatem & de Frutos, Javier & Fakhfakh, Tarek & Diaby, Vacaba, 2013. "Upper and lower bounds for convex value functions of derivative contracts," Economic Modelling, Elsevier, vol. 34(C), pages 69-75.
    2. Dias, José Carlos & Shackleton, Mark B., 2011. "Hysteresis effects under CIR interest rates," European Journal of Operational Research, Elsevier, vol. 211(3), pages 594-600, June.
    3. Ehsan Hajizadeh & Masoud Mahootchi, 2019. "Developing a Risk-Based Approach for American Basket Option Pricing," Computational Economics, Springer;Society for Computational Economics, vol. 53(4), pages 1593-1612, April.
    4. Dongjae Lim & Lingfei Li & Vadim Linetsky, 2012. "Evaluating Callable and Putable Bonds: An Eigenfunction Expansion Approach," Papers 1206.5046, arXiv.org.
    5. Marie-Claude Vachon & Anne Mackay, 2024. "A Unifying Approach for the Pricing of Debt Securities," Papers 2403.06303, arXiv.org, revised Oct 2024.
    6. Piergiacomo Sabino, 2021. "Normal Tempered Stable Processes and the Pricing of Energy Derivatives," Papers 2105.03071, arXiv.org.
    7. Yi-Long Hsiao & Chien-Jung Ting, 2022. "Pricing Rent-to-Own Options with a Barrier Level: Taking Housing Contracts as an Example," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 12(5), pages 1-3.
    8. Piergiacomo Sabino, 2020. "Exact Simulation of Variance Gamma related OU processes: Application to the Pricing of Energy Derivatives," Papers 2004.06786, arXiv.org.
    9. Piergiacomo Sabino, 2021. "Pricing Energy Derivatives in Markets Driven by Tempered Stable and CGMY Processes of Ornstein-Uhlenbeck Type," Papers 2103.13252, arXiv.org.
    10. Lim, Dongjae & Li, Lingfei & Linetsky, Vadim, 2012. "Evaluating callable and putable bonds: An eigenfunction expansion approach," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1888-1908.

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