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 zero-coupon bond by the Vasicek model
The value of a zero-coupon bond with a par value of 1 at time 
and prevailing interest rate 
is defined as:
Since the interest rate is always changing, we ...
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