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Critical Analysis of the Binomial-Tree approach to Convertible Bonds in the framework of Tsiveriotis-Fernandes model


  • K. Milanov
  • O. Kounchev


In the present paper we show that the Binomial-tree approach for pricing, hedging, and risk assessment of Convertible bonds in the framework of the Tsiveriotis-Fernandes model has serious drawbacks. Key words: Convertible bonds, Binomial tree, Tsiveriotis-Fernandes model, Convertible bond pricing, Convertible bond Greeks, Convertible Arbitrage, Delta-hedging of Convertible bonds, Risk Assessment of Convertible bonds.

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  • K. Milanov & O. Kounchev, 2011. "Critical Analysis of the Binomial-Tree approach to Convertible Bonds in the framework of Tsiveriotis-Fernandes model," Papers 1111.2683,
  • Handle: RePEc:arx:papers:1111.2683

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    References listed on IDEAS

    1. Alvarez, Luis H. R., 2000. "Singular stochastic control in the presence of a state-dependent yield structure," Stochastic Processes and their Applications, Elsevier, vol. 86(2), pages 323-343, April.
    2. Bjarne Højgaard & Søren Asmussen & Michael Taksar, 2000. "Optimal risk control and dividend distribution policies. Example of excess-of loss reinsurance for an insurance corporation," Finance and Stochastics, Springer, vol. 4(3), pages 299-324.
    3. T. Choulli & M. Taksar & X. Y. Zhou, 2001. "Excess-of-loss reinsurance for a company with debt liability and constraints on risk reduction," Quantitative Finance, Taylor & Francis Journals, vol. 1(6), pages 573-596.
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