Convertible Bonds: Risks and Optimal Strategies
AbstractWithin the structural approach for credit risk models we discuss the optimal exercise of the callable and convertible bonds. The Vasi˘cekâmodel is applied to incorporate interest rate risk into the firmâs value process which follows a geometric Brownian motion. Finally, we derive pricing bounds for convertible bonds in an uncertain volatility model, i.e. when the volatility of the firm value process lies between two extreme values.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse07_2010.
Date of creation: 12 Dec 2009
Date of revision:
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Convertible bond; game option; uncertain volatility; interest rate risk;
Find related papers by JEL classification:
- G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
- G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation
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