PRICING CALLABLE BONDS BASED ON MONTE CARLO SIMULATION TECHNIQUES

  • พิมพ์ชนก แก้วชัยเจริญกิจ
  • สมพร ปั่นโภชา
Keywords: Callable Bond, Monte Carlo Simulation, CIR Model, Hull-White Model, Embedded Option Pricing

Abstract

This is a study of how to approximate callable bond’s value by using Monte Carlo Simulation which uses the interest rate of zero coupon bond that has a maturity for 1 month period.  We use daily data from the January 2013 to March 2018, totally 1,280 days. By comparing the results of 2 methods which are Cox-Ingersoll-Ross model and Hull-White model. The results show that callable bond from using Cox-Ingersoll-Ross model and Hull-White model are totally different. The Hull-White model give the approximate interest rate based on yield curve better than the Cox-Ingersoll-Ross model. The reason for the better results due to changeable parameter in the Hull-White model.

Published
2018-09-01
Section
Engineering and Technology Articles

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