Pricing Chinese Convertible Bonds with Dynamic Credit Risk
To price convertible bonds more precisely, least squares Monte Carlo (LSM) method is used in this paper for its advantage in handling the dependence of derivatives on the path, and dynamic credit risk is used to replace the fixed one to make the value of convertible bonds reflect the real credit ris...
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| Format: | Article |
| Language: | English |
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Wiley
2014-01-01
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| Series: | Discrete Dynamics in Nature and Society |
| Online Access: | http://dx.doi.org/10.1155/2014/492134 |
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| _version_ | 1832553552211345408 |
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| author | Ping Li Jing Song |
| author_facet | Ping Li Jing Song |
| author_sort | Ping Li |
| collection | DOAJ |
| description | To price convertible bonds more precisely, least squares Monte Carlo (LSM) method is used in this paper for its advantage in handling the dependence of derivatives on the path, and dynamic credit risk is used to replace the fixed one to make the value of convertible bonds reflect the real credit risk. In the empirical study, we price convertible bonds based on static credit risk and dynamic credit risk, respectively. Empirical results indicate that the ICBC convertible bond has been overpriced, resulting from the underestimation of credit risk. In addition, when there is an issue of dividend, the conversion price will change in China's convertible bonds, while it does not change in the international convertible bonds. So we also empirically study the difference between the convertible bond's prices by assuming whether the conversion price changes or not. |
| format | Article |
| id | doaj-art-6e8c96a668b747b582bfefc71fd94b8f |
| institution | Kabale University |
| issn | 1026-0226 1607-887X |
| language | English |
| publishDate | 2014-01-01 |
| publisher | Wiley |
| record_format | Article |
| series | Discrete Dynamics in Nature and Society |
| spelling | doaj-art-6e8c96a668b747b582bfefc71fd94b8f2025-02-03T05:53:43ZengWileyDiscrete Dynamics in Nature and Society1026-02261607-887X2014-01-01201410.1155/2014/492134492134Pricing Chinese Convertible Bonds with Dynamic Credit RiskPing Li0Jing Song1School of Economics and Management, Beihang University, Beijing 100191, ChinaSchool of Economics and Management, Beihang University, Beijing 100191, ChinaTo price convertible bonds more precisely, least squares Monte Carlo (LSM) method is used in this paper for its advantage in handling the dependence of derivatives on the path, and dynamic credit risk is used to replace the fixed one to make the value of convertible bonds reflect the real credit risk. In the empirical study, we price convertible bonds based on static credit risk and dynamic credit risk, respectively. Empirical results indicate that the ICBC convertible bond has been overpriced, resulting from the underestimation of credit risk. In addition, when there is an issue of dividend, the conversion price will change in China's convertible bonds, while it does not change in the international convertible bonds. So we also empirically study the difference between the convertible bond's prices by assuming whether the conversion price changes or not.http://dx.doi.org/10.1155/2014/492134 |
| spellingShingle | Ping Li Jing Song Pricing Chinese Convertible Bonds with Dynamic Credit Risk Discrete Dynamics in Nature and Society |
| title | Pricing Chinese Convertible Bonds with Dynamic Credit Risk |
| title_full | Pricing Chinese Convertible Bonds with Dynamic Credit Risk |
| title_fullStr | Pricing Chinese Convertible Bonds with Dynamic Credit Risk |
| title_full_unstemmed | Pricing Chinese Convertible Bonds with Dynamic Credit Risk |
| title_short | Pricing Chinese Convertible Bonds with Dynamic Credit Risk |
| title_sort | pricing chinese convertible bonds with dynamic credit risk |
| url | http://dx.doi.org/10.1155/2014/492134 |
| work_keys_str_mv | AT pingli pricingchineseconvertiblebondswithdynamiccreditrisk AT jingsong pricingchineseconvertiblebondswithdynamiccreditrisk |