Pricing Convertible Bonds Subject to Default Risk

Abstract

Downloaded from www.iijournals.com by NEW YORK UNIVERSITY on 08/06/15.It is illegal to make unauthorized copies of this article, forward to an unauthorized user or to post electronically without Publisher permission. s(0) = 30, p = 0.7114, u = 1.2214, d = 0.8187, Conversion ratio = 3, Call price = 105, Risk-free yield = 10%, and Risky yield = 15%.

A Tree Model for Pricing Convertible Bonds with Equity, Interest Rate, and Default Risk

“…Our model also differs from the model of Hung and Wang [2002] who, among other differences, assume no correlation. We model correlation analogously to the approach of Hull [2003, p. 474].…”

Notice of Retraction: Convertible bond pricing based on Variance Gamma model

“…In McConnell and Schwartz [9], they 978-1-4244-5540-9/10/$26.00 ©2010 IEEE develop a pricing model based on a finite-difference method with the stock price as stochastic variable. Ho and Pfeffer [23] extends the work by introducing stochastic interest rate model, and Hung and Wang [18] proposes a tree-based model that accounts for both stochastic interest rates and default probabilities. Similar credit-risk approaches are followed by Davis [20].…”

Simulation-based pricing of convertible bonds

“…Ammann et al (2003) extend this approach by accounting for call features with various trigger conditions. Also Hung and Wang (2002) propose a tree-based model that accounts for both stochastic interest rates and default probabilities but looses its recombining property. A further tree-based model is presented by Carayannopoulos and Kalimipalli (2003), who use a trinomial tree and incorporates the reduced-form Duffie and Singleton (1999) credit-risk model.…”