TY - JOUR
T1 - Approximate Formulae for Pricing Zero-Coupon Bonds and Their Asymptotic Analysis
AU - B. Stehlikova & D. Sevcovic
JO - International Journal of Numerical Analysis and Modeling
VL - 2
SP - 274
EP - 283
PY - 2009
DA - 2009/06
SN - 6
DO - http://doi.org/
UR - https://global-sci.org/intro/article_detail/ijnam/767.html
KW - One factor interest rate model, Cox-Ingersoll-Ross model, bond price, analytical approximation formula, experimental order of convergence.
AB - <p style="text-align: justify;">We analyze analytic approximation formulae for pricing zero-coupon bonds in the case when the short-term interest rate is driven by a
one-factor mean-reverting process with a volatility nonlinearly depending on
the interest rate itself. We derive the order of accuracy of the analytical approximation due to Choi and Wirjanto. We furthermore give an explicit formula
for a higher order approximation and we test both approximations numerically
for a class of one-factor interest rate models.</p>