Subsections


Pricing of bond options, basic models


Binomial bond option pricing

Let $B$ be the bond price. Suppose $B$ follows the same process as the usual binomial approaches.



Black Scholes bond option pricing

The Black Scholes model can be used under restrictive assumptions, but the constant volatility assumption of the bond price is unrealistic.


\begin{program}
% latex2html id marker 4467\caption{Black scholes price for Eu...
...ndfile{/home/bernt/2003_algor/all_cc_tex_files/bondopt_call_bs.cc}
\end{program}


\begin{program}
% latex2html id marker 4472\caption{Black scholes price for Eu...
.../home/bernt/2003_algor/all_cc_tex_files/bondopt_call_coupon_bs.cc}
\end{program}

2003-10-22