Paul Wilmott Introduces Quantitative Finance by Paul Wilmott

Author:Paul Wilmott
Language: eng
Format: epub, pdf
ISBN: 9781118836798
Publisher: Wiley
Published: 2013-10-12T04:00:00+00:00

To find a unique solution of (16.4) we must impose one final and two boundary conditions. The final condition corresponds to the payoff on maturity and so for a zero-coupon bond

Boundary conditions depend on the form of u(r, t) and w(r, f) and are discussed later for a special model.

It is easy to incorporate coupon payments into the model. If an amount K(r, t) dt is received in a period dt then

When this coupon is paid discretely, arbitrage considerations lead to jump condition

where a coupon of K(r, tc) is received at time tc.

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