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Boundary Values and Finite Difference Methods for the Single Factor Term Structure Equation

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  • Erik Ekstrom
  • Per Lotstedt
  • Johan Tysk

Abstract

We study the classical single factor term structure equation for models that predict non-negative interest rates. For these models we develop a fast and accurate finite difference method (FD) using the appropriate boundary conditions at zero.

Suggested Citation

  • Erik Ekstrom & Per Lotstedt & Johan Tysk, 2009. "Boundary Values and Finite Difference Methods for the Single Factor Term Structure Equation," Applied Mathematical Finance, Taylor & Francis Journals, vol. 16(3), pages 253-259.
    • Handle: RePEc:taf:apmtfi:v:16:y:2009:i:3:p:253-259
    DOI: 10.1080/13504860802584004
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    References listed on IDEAS

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    1. Y. D'Halluin & P. A. Forsyth & K. R. Vetzal & G. Labahn, 2001. "A numerical PDE approach for pricing callable bonds," Applied Mathematical Finance, Taylor & Francis Journals, vol. 8(1), pages 49-77.
    2. 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.
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    Cited by:

    1. Yan Han & Wanying Li & Shanshan Wei & Tiantian Zhang, 2018. "Research on Passenger’s Travel Mode Choice Behavior Waiting at Bus Station Based on SEM-Logit Integration Model," Sustainability, MDPI, vol. 10(6), pages 1-23, June.
    2. Carl Chiarella & Susanne Griebsch & Boda Kang, 2013. "Investigating Time-Efficient Methods to Price Compound Options in the Heston Model," Research Paper Series 328, Quantitative Finance Research Centre, University of Technology, Sydney.
    3. Len Patrick Dominic M. Garces & Gerald H. L. Cheang, 2021. "A numerical approach to pricing exchange options under stochastic volatility and jump-diffusion dynamics," Quantitative Finance, Taylor & Francis Journals, vol. 21(12), pages 2025-2054, December.
    4. Olesya Grishchenko & Xiao Han & Victor Nistor, 2018. "A volatility-of-volatility expansion of the option prices in the SABR stochastic volatility model," Papers 1812.09904, arXiv.org.
    5. Sutthimat, Phiraphat & Mekchay, Khamron & Rujivan, Sanae, 2022. "Closed-form formula for conditional moments of generalized nonlinear drift CEV process," Applied Mathematics and Computation, Elsevier, vol. 428(C).
    6. Lars Josef Hook & Erik Lindstrom, 2015. "Efficient Computation of the Quasi Likelihood function for Discretely Observed Diffusion Processes," Papers 1509.07751, arXiv.org.
    7. Höök, Lars Josef & Lindström, Erik, 2016. "Efficient computation of the quasi likelihood function for discretely observed diffusion processes," Computational Statistics & Data Analysis, Elsevier, vol. 103(C), pages 426-437.
    8. Dareiotis, Konstantinos & Ekström, Erik, 2019. "Density symmetries for a class of 2-D diffusions with applications to finance," Stochastic Processes and their Applications, Elsevier, vol. 129(2), pages 452-472.

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