We investigate in this paper a perpetual prepayment option related to a corporate loan.The default intensity of the firmis supposed to follow a CIR process. We assume that the contractual margin of the loan is defined by the credit quality of the borrower and the liquidity cost that reflects the...

We investigate in this paper a perpetual prepayment option related to a corporate loan. The short interest rate and default intensity of the firm are supposed to follow CIR processes. A liquidity term that represents the funding costs of the bank is introduced and modeled as a continuous time...

We investigate in this paper a perpetual prepayment option related to a corporate loan. The short interest rate and default intensity of the firm are supposed to follow Cox–Ingersoll–Ross (CIR) processes. A liquidity term that represents the funding costs of the bank is introduced and...

In this work we improve the algorithm of Han and Wu [SIAM J. Numer. Anal. 41 (2003), 2081–2095] for American Options with respect to stability, accuracy and order of computational effort. We derive an exact discrete artificial boundary condition (ABC) for the Crank–Nicolson scheme for...