The Valuation of Callable Convertible Bond with Parisian Feature Using Finite Element Method
To protect the conversion privilege from being called away too soon, the bond indenture commonly contains hard call constraint and soft call constraint, which makes the valuation for the convertible bond more complicated. In this paper, a valuation model for a callable convertible bond with notice period requirement and Parisian feature is presented by partial differential equation method. Moreover, to analyze the interaction between the optimal call policy for the issuer and the optimal conversion policy for the bondholders, a zero-sum game of perfect information between the issuer and the bondholders is constructed based on the option game theory. Then, the finite element method is adopted to solving the pricing model and the projected successive over-relaxation technique is used to handling the American constraint. Finally, to illustrate how the model works, the convertible bond issued by China Merchants Bank is taken for an example. Results show that notice period and Parisian feature have significant affect on the value of convertible bond and the optimal policies of the issuer and holders, and the so called delayed call phenomena has got some explanations here.
Convertible Bond Parisian Option Option Game Finite Element Method
Gong Pu Meng Jian-ling
College of Management,Huazhong University of Science and Technology,Wuhan,430074,P.R.China
国际会议
成都
英文
2007-07-09（万方平台首次上网日期，不代表论文的发表时间）