Convertible Bonds: Risks and Optimal Strategies
Within the structural approach for credit risk models we discuss the optimal exercise of the callable and convertible bonds. The Vasi˘cek–model is applied to incorporate interest rate risk into the firm’s 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.
|Date of creation:||12 Dec 2009|
|Date of revision:|
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