Pricing Chinese Convertible Bonds with Default Intensity by Monte Carlo Method
Joint Authors
Source
Discrete Dynamics in Nature and Society
Issue
Vol. 2019, Issue 2019 (31 Dec. 2019), pp.1-8, 8 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2019-04-15
Country of Publication
Egypt
No. of Pages
8
Main Subjects
Abstract EN
This article proposes a new way to price Chinese convertible bonds by the Longstaff-Schwartz Least Squares Monte Carlo simulation.
The default intensity and the volatility are the two important parameters, which are difficultly obtained in the emerging market, in pricing convertible bonds.
By developing the Merton theory, we find a new effective method to get the theoretical value of the two parameters.
In the pricing method, the default risk is described by the default intensity, and a default on a bond is triggered by the bottom Q(T) (default probability) percentile of the simulated stock prices at the maturity date.
In the present simulation, a risk-free interest rate is used to discount the cash flows.
So, the new pricing model is considered to tally with the general pricing rule under martingale measure.
The empirical results of the CEB and the XIG convertible bonds by the proposed method are compared with those obtained by the credit spreads method.
It is also found that the theoretical prices calculated by the method proposed in the article fit the market prices well, especially, in the long run tendency.
American Psychological Association (APA)
Luo, Xin& Zhang, Jinlin. 2019. Pricing Chinese Convertible Bonds with Default Intensity by Monte Carlo Method. Discrete Dynamics in Nature and Society،Vol. 2019, no. 2019, pp.1-8.
https://search.emarefa.net/detail/BIM-1146606
Modern Language Association (MLA)
Luo, Xin& Zhang, Jinlin. Pricing Chinese Convertible Bonds with Default Intensity by Monte Carlo Method. Discrete Dynamics in Nature and Society No. 2019 (2019), pp.1-8.
https://search.emarefa.net/detail/BIM-1146606
American Medical Association (AMA)
Luo, Xin& Zhang, Jinlin. Pricing Chinese Convertible Bonds with Default Intensity by Monte Carlo Method. Discrete Dynamics in Nature and Society. 2019. Vol. 2019, no. 2019, pp.1-8.
https://search.emarefa.net/detail/BIM-1146606
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-1146606