Approximate formulae for pricing zero-coupon bonds and their asymptotic analysis

2008/02/21 by Beáta Stehlí­ková, Stehlikova, Beata, Daniel Ševčovič +1 · 1 citation
Economics, Econometrics and Finance · #35K05 #91B28 #Credit Risk and Financial Regulations #Economic theories and models #FOS: Economics and business #FOS: Mathematics #Numerical Analysis (math.NA) #Pricing of Securities (q-fin.PR) #Stochastic processes and financial applications

paper · pdf · doi:10.48550/arxiv.0802.3039

openalex publication_date 2008/02/21 · openalex created_date 2025/10/10 · openalex updated_date 2026/08/01

Abstract

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.

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