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A note on "Monte Carlo analysis of convertible bonds with reset clause"

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  • Yang, Jingyang
  • Choi, Yoon
  • Li, Shenghong
  • Yu, Jinping

Abstract

Kimura and Shinohara [T. Kimura, T. Shinohara, Monte Carlo analysis of convertible bonds with reset clauses, European Journal of Operational Research 168 (2006) 301-310] analyze the value of a non-callable convertible bond with a reset clause. For a reset convertible bond, the conversion ratio is not fixed but depends on the underlying stock price. However, their model does not consider a dilution effect which can result due to changes in the number of shares into which the bond is converted. In this paper, we have developed a new pricing formula for reset convertible bonds that adjusts for dilution.

Suggested Citation

  • Yang, Jingyang & Choi, Yoon & Li, Shenghong & Yu, Jinping, 2010. "A note on "Monte Carlo analysis of convertible bonds with reset clause"," European Journal of Operational Research, Elsevier, vol. 200(3), pages 924-925, February.
    • Handle: RePEc:eee:ejores:v:200:y:2010:i:3:p:924-925
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    References listed on IDEAS

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    1. Li, Shu Jin & Li, Sheng Hong & Sun, Chao, 2007. "A generalization of reset options pricing formulae with stochastic interest rates," Research in International Business and Finance, Elsevier, vol. 21(2), pages 119-133, June.
    2. Kimura, Toshikazu & Shinohara, Toshio, 2006. "Monte Carlo analysis of convertible bonds with reset clauses," European Journal of Operational Research, Elsevier, vol. 168(2), pages 301-310, January.
    3. 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 637-654, May-June.
    4. Eric C. K. Yu & William T. Shaw, 2008. "On The Valuation Of Derivatives With Snapshot Reset Features," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(08), pages 905-941.
    5. K. G. Nyborg, 1996. "The use and pricing of convertible bonds," Applied Mathematical Finance, Taylor & Francis Journals, vol. 3(3), pages 167-190.
    6. Ali Bora Yigitsbasioglu & Dmitri Lvov & Naoufel El-Bachir, 2004. "Pricing Convertible Bonds by Simulation," ICMA Centre Discussion Papers in Finance icma-dp2004-14, Henley Business School, University of Reading, revised Aug 2004.
    7. 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.
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    1. Fan, Chenxi & Luo, Xingguo & Wu, Qingbiao, 2017. "Stochastic volatility vs. jump diffusions: Evidence from the Chinese convertible bond market," International Review of Economics & Finance, Elsevier, vol. 49(C), pages 1-16.
    2. Jonathan A. Batten & Karren Lee-Hwei Khaw & Martin R. Young, 2014. "Convertible Bond Pricing Models," Journal of Economic Surveys, Wiley Blackwell, vol. 28(5), pages 775-803, December.
    3. Tian‐Shyr Dai & Chen‐Chiang Fan & Liang‐Chih Liu & Chuan‐Ju Wang & Jr‐Yan Wang, 2022. "A stochastic‐volatility equity‐price tree for pricing convertible bonds with endogenous firm values and default risks determined by the first‐passage default model," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 42(12), pages 2103-2134, December.

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