Exercise 27.4.11 Correct Fig. 27.7(d).

Algorithm for computing the OAS of callable bonds: input: P. n, cp[n], r[1..n]. C[0..n], v[1..n], e; P[1..n+1],s; real integer i, j; s=0; // Initial guess. P[1]:= 00; while [P[1] P|> ] { } return s; for (i=1 to n+1) {P[i]=C[n];} // Initialization. for (i=n down to 1) // Sweep the column backward in time. for (j=1 to i) // Backward induction. P[J]+P[j+1] P[j]=c[i-1]+min (p[i-1], 2 (1+7|||x7|-||-++8) Updates; Figure 27.8: Algorithm for computing the OAS of callable bonds. P is the market price, cp[i] is the call price