The aim of this paper is to price options embedded in bonds in a Dynamic Programming (DP) framework, the focus being on call and put options with advance notice. The pricing of interest rate derivatives was usually done via trees or finite differences. Trees are not really very efficient as they...

We consider a finite horizon discrete time model for bond market where bond prices are functions of the short rate process. We use a variant of the Ito's formula to decompose the bond price process into unique drift and martingale processes. We then apply the Girsanov's Theorem for finding a...

Solow and Hahn proposed an overlapping generations model in 1995 with which to criticize rational expectations. The agents have perfect foresight, but are subjected to an unanticipated shock in the population. The authors showed that the economy couldn't return to the steady state without...