scholarly journals Binary Tree Pricing to Convertible Bonds with Credit Risk under Stochastic Interest Rates

2013 ◽  
Vol 2013 ◽  
pp. 1-8 ◽  
Author(s):  
Jianbo Huang ◽  
Jian Liu ◽  
Yulei Rao
Keyword(s):  
Credit Risk ◽  
Interest Rates ◽  
Stock Prices ◽  
Binary Tree ◽  
Convertible Bonds ◽  
Tree Model ◽  
Credit Risks ◽  
Derivative Instruments ◽  
Stochastic Interest ◽  
Financial Derivative

The convertible bonds usually have multiple additional provisions that make their pricing problem more difficult than straight bonds and options. This paper uses the binary tree method to model the finance market. As the underlying stock prices and the interest rates are important to the convertible bonds, we describe their dynamic processes by different binary tree. Moreover, we consider the influence of the credit risks on the convertible bonds that is described by the default rate and the recovery rate; then the two-factor binary tree model involving the credit risk is established. On the basis of the theoretical analysis, we make numerical simulation and get the pricing results when the stock prices are CRR model and the interest rates follow the constant volatility and the time-varying volatility, respectively. This model can be extended to other financial derivative instruments.

scholarly journals Valuing Convertible Bonds Based on LSRQM Method

2014 ◽  
Vol 2014 ◽  
pp. 1-9 ◽  
Author(s):  
Jian Liu ◽  
Lizhao Yan ◽  
Chaoqun Ma
Keyword(s):  
Interest Rates ◽  
Financial Market ◽  
Convertible Bonds ◽  
Theoretical Research ◽  
Stochastic Interest Rates ◽  
Market Prices ◽  
Quasi Monte Carlo ◽  
Financial Products ◽  
Stochastic Interest ◽  
Pricing Theory

Convertible bonds are one of the essential financial products for corporate finance, while the pricing theory is the key problem to the theoretical research of convertible bonds. This paper demonstrates how to price convertible bonds with call and put provisions using Least-Squares Randomized Quasi-Monte Carlo (LSRQM) method. We consider the financial market with stochastic interest rates and credit risk and present a detailed description on calculating steps of convertible bonds value. The empirical results show that the model fits well the market prices of convertible bonds in China’s market and the LSRQM method is effective.

PRICING AND HEDGING CONVERTIBLE BONDS: DELAYED CALLS AND UNCERTAIN VOLATILITY

2006 ◽  
Vol 09 (03) ◽  
pp. 415-453 ◽  
Author(s):  
ALI BORA YIǦITBAŞIOǦLU ◽  
CAROL ALEXANDER
Keyword(s):  
Interest Rates ◽  
Important Determinant ◽  
Convertible Bonds ◽  
Reduced Form ◽  
Hazard Rates ◽  
Stochastic Interest Rates ◽  
Period Effects ◽  
Stochastic Interest ◽  
Non Linear ◽  
The Common

Arbitrage-free price bounds for convertible bonds are obtained assuming equity-linked hazard rates, stochastic interest rates and different assumptions about default and recovery behavior. Uncertainty in volatility is modeled using a stochastic volatility process for the common stock that lies within a band but makes few other assumptions about volatility dynamics. A non-linear multi-factor reduced-form equity-linked default model leads to a set of non-linear partial differential complementarity equations that are governed by the volatility path. Empirical results focus on call notice period effects. Increasingly pessimistic values for the issuer's substitution asset obtain as we introduce more uncertainty during the notice period. Uncertain in volatility, in particular, appears to be an important determinant of the call premium that is so often observed in issuer's call policies.

scholarly journals Present Scenario Of Derivative Market In India : An Analysis (2010-2018)

2018 ◽  
Vol 8 (02) ◽  
Author(s):  
Meenakshi Bindal
Keyword(s):  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Financial Risk ◽  
Financial Risks ◽  
Macroeconomic Factors ◽  
Business World ◽  
Time Period ◽  
Financial Derivative ◽  
Derivative Market

Derivative market has an important role to play in economic development of a country. Change in exchange rates, interest rates and stock prices of different financial markets have increased the financial risk to the corporate world. Adverse changes in the macroeconomic factors have even threatened the very survival of business world. It is therefore necessary to develop a set of new financial instruments known as derivatives in the Indian financial markets, to manage such risk. The objectives of these instruments is to provide commitments to prices for future dates for giving protection against adverse movements in future prices, in order to reduce the extent of financial risks. This paper traces the growth and current position of India derivative market. The present study is an effort to analyze derivative trading in india. It is an effort to demonstrate the growth and expansion of financial derivative of NSE in India the time period i,e 2010-2011 to 2017-18.The market turnover has grown from Rs.17663664.57 Cr. in 2009-2010 to 1163539816.124 Cr. in 2017-18.

scholarly journals Application of Nonarbitrage Pricing Model and Finite Element Numerical Solution in the Value of Convertible Bonds in the Stock Market

2021 ◽  
Vol 2021 ◽  
pp. 1-9
Author(s):  
Xiaoxiao Guo
Keyword(s):  
Finite Element ◽  
Stock Market ◽  
Numerical Solution ◽  
Binary Tree ◽  
Convertible Bonds ◽  
Convertible Bond ◽  
Pricing Model ◽  
Tree Model ◽  
Comprehensive Performance ◽  
Pricing Theory

Because of its creditor’s rights, equity, and options, convertible bonds have been developed rapidly since its emergence and have become one of the main tools in the financial market. One of the core problems of convertible bonds is pricing. The research on the pricing model of convertible bonds in China is relatively late. Most of them use foreign technologies, but they are quite different from the actual situation in China, and most of the models are characterized by a single factor. Therefore, this paper puts forward the nonarbitrage pricing model in the stock market and the application of the finite element numerical solution in the value of convertible bonds. The biggest innovation of this paper is to design a combined pricing model by using the model of nonarbitrage pricing theory and finite element numerical solution. The model combines the advantages of the nonarbitrage pricing theory and finite element numerical solution, and through the design of this paper, the model effectively improves the calculation accuracy and is suitable for most of the current market environment. While improving the comprehensive performance of the pricing model, it also simplifies the calculation methods and steps. In order to further verify the actual effect of the pricing model in this paper, the traditional binary tree model is taken as the experimental contrast object, including the comparative analysis of the market price and the theoretical price of the convertible bond, the comparative experiment of the prediction effect between the model and the binary tree model, and the analysis of the relative price error of the convertible bond. The results show that the comprehensive performance of the pricing model in this paper is significantly better than the traditional binary tree model. This study has achieved ideal results and can be widely recommended.

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