Modelling Callable Annuity Bonds with Interest-Only Optionality

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Modelling Callable Annuity Bonds with Interest-Only Optionality

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dc.contributor.author Holst, Anders en_US
dc.contributor.author Nalholm, Morten en_US
dc.date.accessioned 2009-02-04T10:26:14Z
dc.date.available 2009-02-04T10:26:14Z
dc.date.issued 2004-11-02T00:00:00Z en_US
dc.identifier.isbn 8790705823 en_US
dc.identifier.uri http://hdl.handle.net/10398/7149
dc.description.abstract In this paper an investigation of the pricing of callable annuities with interest-only (I-O) optionality is conducted. First the I-O optionality feature of callable annuities is introduced. Next an algorithm for pricing callable annuities with I-O optionality using the finite difference methodology, is formulated. This is then used to investigate optimal strategies of I-O bonds and impacts on prices from the I-O optionality. It is found that the I-O feature necessitates a simultaneous valuation of all elements of the callable I-O bond. Following this, the Greeks of the I-O bond are investigated. It is found that they are affected by the I-O feature, but only to a limited extent. Finally, a model of heterogenous prepayment decisions is incorporated into the framework. The model is extended to model heterogeneity in the I-O exercise decisions. The incorporation of heterogeneity in borrower decisions is found to lead to reasonable causalities. en_US
dc.format.extent 47 s. en_US
dc.language eng en_US
dc.relation.ispartofseries Working paper;2004-006 en_US
dc.subject.other kep en_US
dc.title Modelling Callable Annuity Bonds with Interest-Only Optionality en_US
dc.type wp en_US
dc.accessionstatus modt04nov02 miel en_US
dc.contributor.corporation Copenhagen Business School. CBS en_US
dc.contributor.department Institut for Finansiering en_US
dc.contributor.departmentshort FI en_US
dc.contributor.departmentuk Department of Finance en_US
dc.contributor.departmentukshort FI en_US
dc.idnumber 8790705823 en_US
dc.publisher.city København en_US
dc.publisher.year 2004 en_US


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