Numerical methods for pricing callable bonds

This work demonstrates that it is possible to obtain accurate values of callable bonds using a fully numerical approach, provided that the PDE is discretized appropriately. To facilitate comparisons with results reported by Buttler and Waldvogel (1996), we consider models with a single factor: the instantaneous risk free interest rate. We emphasize, however, that it is straightforward to extend the numerical methods described to cases where the Green´s function cannot be determined analytically as well as to cases with time-dependent parameters (typically used to match current term structures of interest rates/interest rate volatilities), or multi-factor interest rate models