Pricing of Embedded Options in Bank Deposits and Loans Based on Jump-Diffusion Interest Rate Model

Table 1

Decomposition of bank deposits and loans with embedded options.

Banking items	Corresponding bond position	Corresponding option position
Bank deposits	Callable bonds issued by banks (short) = ordinary bonds + resale right	Interest rate call options (short)
Bank loans	Redeemable bonds issued by borrowers (long) = ordinary bonds – redemption right	Interest rate put options (short)