IDEAS home Printed from https://ideas.repec.org/a/hin/jnlmpe/381943.html
   My bibliography  Save this article

Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions

Author

Listed:
  • Wei-Guo Zhang
  • Ping-Kang Liao

Abstract

This paper discusses the convertible bonds pricing problem with regime switching and credit risk in the convertible bond market. We derive a Black-Scholes-type partial differential equation of convertible bonds and propose a convertible bond pricing model with boundary conditions. We explore the impact of dilution effect and debt leverage on the value of the convertible bond and also give an adjustment method. Furthermore, we present two numerical solutions for the convertible bond pricing model and prove their consistency. Finally, the pricing results by comparing the finite difference method with the trinomial tree show that the strength of the effect of regime switching on the convertible bond depends on the generator matrix or the regime switching strength.

Suggested Citation

  • Wei-Guo Zhang & Ping-Kang Liao, 2014. "Pricing Convertible Bonds with Credit Risk under Regime Switching and Numerical Solutions," Mathematical Problems in Engineering, Hindawi, vol. 2014, pages 1-13, May.
    • Handle: RePEc:hin:jnlmpe:381943
    DOI: 10.1155/2014/381943
    as

    Download full text from publisher

    File URL: http://downloads.hindawi.com/journals/MPE/2014/381943.pdf
    Download Restriction: no
    File URL: http://downloads.hindawi.com/journals/MPE/2014/381943.xml
    Download Restriction: no
    File URL: https://libkey.io/10.1155/2014/381943?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kim, Byung-June & Jang, Bong-Gyu, 2021. "Convertible bond valuation with regime switching," Chaos, Solitons & Fractals, Elsevier, vol. 150(C).

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hin:jnlmpe:381943. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Mohamed Abdelhakeem (email available below). General contact details of provider: https://www.hindawi.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.