Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions
Joint Authors
Source
Mathematical Problems in Engineering
Issue
Vol. 2014, Issue 2014 (31 Dec. 2014), pp.1-13, 13 p.
Publisher
Hindawi Publishing Corporation
Publication Date
2014-05-19
Country of Publication
Egypt
No. of Pages
13
Main Subjects
Abstract EN
This paper discusses the convertible bonds pricing problem with regime switching and credit risk in the convertible bond market.
We derive a Black-Scholes-type partial differential equation of convertible bonds and propose a convertible bond pricing model with boundary conditions.
We explore the impact of dilution effect and debt leverage on the value of the convertible bond and also give an adjustment method.
Furthermore, we present two numerical solutions for the convertible bond pricing model and prove their consistency.
Finally, the pricing results by comparing the finite difference method with the trinomial tree show that the strength of the effect of regime switching on the convertible bond depends on the generator matrix or the regime switching strength.
American Psychological Association (APA)
Zhang, Wei-Guo& Liao, Ping-Kang. 2014. Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions. Mathematical Problems in Engineering،Vol. 2014, no. 2014, pp.1-13.
https://search.emarefa.net/detail/BIM-467630
Modern Language Association (MLA)
Zhang, Wei-Guo& Liao, Ping-Kang. Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions. Mathematical Problems in Engineering No. 2014 (2014), pp.1-13.
https://search.emarefa.net/detail/BIM-467630
American Medical Association (AMA)
Zhang, Wei-Guo& Liao, Ping-Kang. Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions. Mathematical Problems in Engineering. 2014. Vol. 2014, no. 2014, pp.1-13.
https://search.emarefa.net/detail/BIM-467630
Data Type
Journal Articles
Language
English
Notes
Includes bibliographical references
Record ID
BIM-467630