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Two-factor convertible bonds valuation using the method of characteristics/finite elements

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  • Barone-Adesi, Giovanni
  • Bermudez, Ana
  • Hatgioannides, John
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    Bibliographic Info

    Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

    Volume (Year): 27 (2003)
    Issue (Month): 10 (August)
    Pages: 1801-1831

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    Handle: RePEc:eee:dyncon:v:27:y:2003:i:10:p:1801-1831

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    1. Duffie, Darrell & Singleton, Kenneth J, 1999. "Modeling Term Structures of Defaultable Bonds," Review of Financial Studies, Society for Financial Studies, vol. 12(4), pages 687-720.
    2. Heath, David & Jarrow, Robert & Morton, Andrew, 1992. "Bond Pricing and the Term Structure of Interest Rates: A New Methodology for Contingent Claims Valuation," Econometrica, Econometric Society, vol. 60(1), pages 77-105, January.
    3. Harrison, J. Michael & Kreps, David M., 1979. "Martingales and arbitrage in multiperiod securities markets," Journal of Economic Theory, Elsevier, vol. 20(3), pages 381-408, June.
    4. Jalan, P. & Barone-Adesi, G., 1995. "Equity financing and corporate convertible bond policy," Journal of Banking & Finance, Elsevier, vol. 19(2), pages 187-206, May.
    5. Dietmar Leisen & Matthias Reimer, 1996. "Binomial models for option valuation - examining and improving convergence," Applied Mathematical Finance, Taylor & Francis Journals, vol. 3(4), pages 319-346.
    6. Robert C. Merton, 1973. "Theory of Rational Option Pricing," Bell Journal of Economics, The RAND Corporation, vol. 4(1), pages 141-183, Spring.
    7. Ho, Thomas S Y & Lee, Sang-bin, 1986. " Term Structure Movements and Pricing Interest Rate Contingent Claims," Journal of Finance, American Finance Association, vol. 41(5), pages 1011-29, December.
    8. Cox, John C & Ingersoll, Jonathan E, Jr & Ross, Stephen A, 1985. "A Theory of the Term Structure of Interest Rates," Econometrica, Econometric Society, vol. 53(2), pages 385-407, March.
    9. Brennan, M J & Schwartz, Eduardo S, 1977. "Convertible Bonds: Valuation and Optimal Strategies for Call and Conversion," Journal of Finance, American Finance Association, vol. 32(5), pages 1699-1715, December.
    10. Zvan, R. & Vetzal, K. R. & Forsyth, P. A., 2000. "PDE methods for pricing barrier options," Journal of Economic Dynamics and Control, Elsevier, vol. 24(11-12), pages 1563-1590, October.
    11. McConnell, John J & Schwartz, Eduardo S, 1986. " LYON Taming," Journal of Finance, American Finance Association, vol. 41(3), pages 561-76, July.
    12. Duffee, Gregory R, 1996. " Idiosyncratic Variation of Treasury Bill Yields," Journal of Finance, American Finance Association, vol. 51(2), pages 527-51, June.
    13. Ingersoll, Jonathan E, Jr, 1977. "An Examination of Corporate Call Policies on Convertible Securities," Journal of Finance, American Finance Association, vol. 32(2), pages 463-78, May.
    14. K. G. Nyborg, 1996. "The use and pricing of convertible bonds," Applied Mathematical Finance, Taylor & Francis Journals, vol. 3(3), pages 167-190.
    15. Hull, John & White, Alan, 1990. "Pricing Interest-Rate-Derivative Securities," Review of Financial Studies, Society for Financial Studies, vol. 3(4), pages 573-92.
    16. Hans-Jürg Büttler & Jorg Waldvogel, 1996. "Pricing Callable Bonds By Means Of Green'S Function," Mathematical Finance, Wiley Blackwell, vol. 6(1), pages 53-88.
    17. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
    18. Bliss, Robert R & Ronn, Ehud I, 1998. "Callable U.S. Treasury Bonds: Optimal Calls, Anomalies, and Implied Volatilities," The Journal of Business, University of Chicago Press, vol. 71(2), pages 211-52, April.
    19. Buttler, Hans-Jurg, 1995. "Evaluation of Callable Bonds: Finite Difference Methods, Stability and Accuracy," Economic Journal, Royal Economic Society, vol. 105(429), pages 374-84, March.
    20. D. M. Pooley & P. A. Forsyth & K. R. Vetzal & R. B. Simpson, 2000. "Unstructured meshing for two asset barrier options," Applied Mathematical Finance, Taylor & Francis Journals, vol. 7(1), pages 33-60.
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    Cited by:
    1. Ben-Ameur, Hatem & de Frutos, Javier & Fakhfakh, Tarek & Diaby, Vacaba, 2013. "Upper and lower bounds for convex value functions of derivative contracts," Economic Modelling, Elsevier, vol. 34(C), pages 69-75.
    2. Ammann, Manuel & Kind, Axel & Wilde, Christian, 2008. "Simulation-based pricing of convertible bonds," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 310-331, March.
    3. Lim, Dongjae & Li, Lingfei & Linetsky, Vadim, 2012. "Evaluating callable and putable bonds: An eigenfunction expansion approach," Journal of Economic Dynamics and Control, Elsevier, vol. 36(12), pages 1888-1908.
    4. Song-Ping Zhu & Jing Zhang, 2012. "How should a convertible bond be decomposed?," Decisions in Economics and Finance, Springer, vol. 35(2), pages 113-149, November.
    5. Siddiqi, Mazhar A., 2009. "Investigating the effectiveness of convertible bonds in reducing agency costs: A Monte-Carlo approach," The Quarterly Review of Economics and Finance, Elsevier, vol. 49(4), pages 1360-1370, November.
    6. Zhou, Qi-Yuan & Wu, Chong-Feng & Feng, Yun, 2007. "Decomposing and valuing callable convertible bonds: a new method based on exotic options," MPRA Paper 7421, University Library of Munich, Germany.

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