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We propose a dynamic programming (DP) approach for pricing options embedded in bonds, the focus being on call and put options with advance notice. An efficient procedure is developed for the cases where the interest-rate process follows the Vasicek, Cox–Ingersoll– Ross (CIR), or generalized Vasicek models. Our DP methodology uses the exact joint(More)
A previous version of this paper was circulated as " Jumps and Recovery Rates Inferred from Corporate CDS Premia ". We are thankful to FIRM@WU for access to their high-performance computing resources as well as friendly support, and to Dow Jones for providing us with complete ICB sector information. We are indebted to and an anonymous referee for many(More)
Dorion thanks IFM2 for financial support. Christoffersen is supported by SSRHC and Bank of Canada. We would like to thank Luca Benzoni, Bob Kimmel, two anonymous referees, an associate editor, and the editor (Wei Xiong) for helpful comments. Any remaining inadequacies are ours alone. The views, if any, expressed in this paper are those of the authors, not(More)
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