Pricing Bonds And Bonds Option Under The Twice Jump-Diffusion Interest Rate Model

With the expansion of issuing scale of national bond, bond market in China has developed rapidly in recent years. Especially on the National bond、Corporate bonds and term structure of interest has greatly promoted the open market operation in the Central Bank of China.Bonds is the most principal means to carry out the national monetary policy. What’s more, it is an important index to indicate economic development and an important tool to manage and control interest rate risk. Frequent fluctuations of interest rate expose national bonds holders to market risk.To reduce and avoid risk and to maintain and increase values, there is a strong demand for making modern financial derivatives as effective risk control means.Term structure of interest rate is the relation between yield-to-maturity and time-to-maturity. It is the precondition of asset pricing, financial derivative products design. So,Good term structure research it is not only the premise of risk management, but also the basis of pricing asset.designing and pricing interest rate derivatives. In recent years, models of term structure of interest rate have made further progress, which is reflected in the continuously deepened and refined research on interest rate term structure dynamics. During the past decade, most multi-factor models of interest rate term structure dynamics has made considerable progress. However, there are few empirical studies on pricing interest rate derivatives and hedging.The present study first makes a summary of term structure and model of interest rate by in-troducing the development of the theories and models of term structure of interest rate. Some representative models are also presented. Then, Twice Jump-Diffusion interest rate model is es-tablished on the condition that interest rate accords with quadratic function of economic-factor jump-diffusion model. Later, zero-coupon bond and bond options are priced. Display solution at any time is obtained by conducting affine systems of economic variables and solving partial dif-ferential equations and ordinary differential equation. Based on the previous chapter, Chapter three studies the pricing of the bonds default and bond option of structured companies. The option pricing principles, the Feynman-Kac equation and Fourier inversion transform are employed to solve partial differential equations and ordinary differential equations and to gain display solution. Then sensitivity analysis is conducted through numerical examples and get some conclusions.Researches on term structure of interest rate and interest rate derivatives pricing are complex and diverse as their long-term, dynamic, and systematic characteristics. Accurate pricing of bonds and bond options has a positive effect on policy-making and economic development.