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Mastering Python for Finance by James Ma Weiming

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Pricing a callable bond option

In this section, we will take a look at pricing a callable bond. We assume that the bond to be priced is a zero-coupon paying bond with an embedded European call option. The price of a callable bond can be thought of as:

Pricing a callable bond option

Pricing a zero-coupon bond by the Vasicek model

The value of a zero-coupon bond with a par value of 1 at time Pricing a zero-coupon bond by the Vasicek model and prevailing interest rate Pricing a zero-coupon bond by the Vasicek model is defined as:

Since the interest rate is always changing, we ...

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