| Sumario: | A study was conducted to evaluate numerically the semi-American callable bond by means of finite difference methods. A callable bond is a bond that allows the debtor to buy back or to “call” the bond for a specified amount, the call price, plus the accrued interest since the last coupon date at some time, the call date, during the life of the bond. The findings reveal that the numerical error is greater for the callable bond price than for the straight bond price and too large for real applications. The numerical accuracy of the callable bond price computed for the relevant range of interest rates depends entirely on the finite difference scheme that is selected for the boundary points. In addition, the boundary scheme that yields the smallest numerical error with regard to the straight bond does not perform best with regard to the callable bond.
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