Convertible Bonds with Higher Loan Rate: Model, Valuation, and Optimal Strategy
We study the pricing problem for convertible bonds via backward stochastic differential equations (BSDEs). By virtue of reflected BSDEs and Malliavin derivatives, we establish the formulae for the fair price of convertible bonds and the hedging portfolio strategy explicitly. We also obtain the optim...
Saved in:
| Main Authors: | , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
Wiley
2014-01-01
|
| Series: | Abstract and Applied Analysis |
| Online Access: | http://dx.doi.org/10.1155/2014/341519 |
| Tags: |
Add Tag
No Tags, Be the first to tag this record!
|
| Summary: | We study the pricing problem for convertible bonds via backward
stochastic differential equations (BSDEs). By virtue of reflected BSDEs
and Malliavin derivatives, we establish the formulae for the fair price of convertible
bonds and the hedging portfolio strategy explicitly. We also obtain
the optimal conversion time when there is no dividends-paying for underlying
common stocks. Furthermore, we consider the case that the loan rate
is higher than riskless interest rate in a financial market, and conclude that
it does not affect the price of convertible bonds actually. To illustrate our
results, some numerical simulations are given and discussed at last. |
|---|---|
| ISSN: | 1085-3375 1687-0409 |