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This document presents a numerical PDE approach for pricing callable bonds that require advance notice of a call. It summarizes that finite difference methods were previously thought unable to accurately price such bonds due to discontinuities, but that more advanced techniques like flux limiters allow an accurate numerical PDE approach. It also notes that modeling the boundary condition at r=0 is important for single factor interest rate models with a positive domain like CIR. The paper aims to develop a g

Author

Marina Penkova

Language

EN