Adapted Downhill Simplex Method for Pricing Convertible Bonds
The paper is devoted to modeling optimal exercise strategies of the behavior of investors and issuers working with convertible bonds. This implies solution of the problems of stock price modeling, payoff computation and min-max optimization. Stock prices (underlying asset) were modeled under the assumption of the geometric Brownian motion of their values. The Monte Carlo method was used for calculating the real payoff which is the objective function. The min-max optimization problem was solved using the derivative-free Downhill Simplex method. The performed numerical experiments allowed to formulate recommendations for the choice of appropriate size of the initial simplex in the Downhill Simplex Method, the number of generated trajectories of underlying asset, the size of the problem and initial trajectories of the behavior of investors and issuers.
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- 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.
- Garcia, Diego, 2003. "Convergence and Biases of Monte Carlo estimates of American option prices using a parametric exercise rule," Journal of Economic Dynamics and Control, Elsevier, vol. 27(10), pages 1855-1879, August.
When requesting a correction, please mention this item's handle: RePEc:arx:papers:0710.0241. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (arXiv administrators)
If references are entirely missing, you can add them using this form.