Convex upper and lower bounds for present value functions

D. Vyncke, Marc Goovaerts and Jan Dhaene

Applied Stochastic Models in Business and Industry, 2001, vol. 17, issue 2, 149-164

Abstract: In this paper we present an efficient methodology for approximating the distribution function of the net present value of a series of cash‐flows, when discounting is presented by a stochastic differential equation as in the Vasicek model and in the Ho–Lee model. Upper and lower bounds in convexity order are obtained. The high accuracy of the method is illustrated for cash‐flows for which no analytical results are available. Copyright © 2001 John Wiley & Sons, Ltd.

Date: 2001
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Persistent link: https://EconPapers.repec.org/RePEc:wly:apsmbi:v:17:y:2001:i:2:p:149-164

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