EXHIBIT 3: The LMM Lattice Structure of the Callable Bond .
The callable bond is defined in Exhibit 2. denotes the reduced value of the callable bond at any node (i, j ). denotes the coupon at . is the value calculated by the final integration. is the final callable bond value that is equal to plus the present value of . The grid space is and the number of nodes is . This lattice has 3 steps and 7 nodes.