Download or read book A Simple and Precise Method for Pricing Convertible Bond with Credit Risk written by Tim Xiao and published by . This book was released on 2019 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a new model for valuing hybrid defaultable financial instruments, such as, convertible bonds. In contrast to previous studies, the model relies on the probability distribution of a default jump rather than the default jump itself, as the default jump is usually inaccessible. As such, the model can back out the market prices of convertible bonds. A prevailing belief in the market is that convertible arbitrage is mainly due to convertible underpricing. Empirically, however, we do not find evidence supporting the underpricing hypothesis. Instead, we find that convertibles have relatively large positive gammas. As a typical convertible arbitrage strategy employs delta-neutral hedging, a large positive gamma can make the portfolio highly profitable, especially for a large movement in the underlying stock price.
Download or read book The Handbook of Convertible Bonds written by Jan De Spiegeleer and published by John Wiley & Sons. This book was released on 2011-07-07 with total page 400 pages. Available in PDF, EPUB and Kindle. Book excerpt: This is a complete guide to the pricing and risk management of convertible bond portfolios. Convertible bonds can be complex because they have both equity and debt like features and new market entrants will usually find that they have either a knowledge of fixed income mathematics or of equity derivatives and therefore have no idea how to incorporate credit and equity together into their existing pricing tools. Part I of the book covers the impact that the 2008 credit crunch has had on the markets, it then shows how to build up a convertible bond and introduces the reader to the traditional convertible vocabulary of yield to put, premium, conversion ratio, delta, gamma, vega and parity. The market of stock borrowing and lending will also be covered in detail. Using an intuitive approach based on the Jensen inequality, the authors will also show the advantages of using a hybrid to add value - pre 2008, many investors labelled convertible bonds as 'investing with no downside', there are of course plenty of 2008 examples to prove that they were wrong. The authors then go onto give a complete explanation of the different features that can be embedded in convertible bond. Part II shows readers how to price convertibles. It covers the different parameters used in valuation models: credit spreads, volatility, interest rates and borrow fees and Maturity. Part III covers investment strategies for equity, fixed income and hedge fund investors and includes dynamic hedging and convertible arbitrage. Part IV explains the all important risk management part of the process in detail. This is a highly practical book, all products priced are real world examples and numerical examples are not limited to hypothetical convertibles. It is a must read for anyone wanting to safely get into this highly liquid, high return market.
Download or read book Pricing Convertible Bonds by Simulation written by Ali Bora Yigitbasioglu and published by . This book was released on 2006 with total page 21 pages. Available in PDF, EPUB and Kindle. Book excerpt: Convertible bonds are complex hybrid securities subject to multiple sources of risk. Many exhibit exotic path dependent features. Monte Carlo method is usually the favorite choice for solving high-dimensional problems and pricing path dependent securities. This paper breaks away from the tradition established in the literature of pricing convertible bonds with finite difference and lattice methods, and suggests a simulation methodology for convertible bond pricing. We introduce the dividend process for convertible bonds, and formulate the pricing problem according to the probabilistic martingale approach. The proposed methodology deals with convertible bonds, subject to credit risk, with call and put features. The early exercise rules are estimated by means of least squares regressions as in Longstaff and Schwartz (2001). The accuracy of the simulation algorithm is tested in the context of a two factor model. The algorithm performs fairly well, and shows potential for further extension to include many complexities inherent in convertible bonds, as well as additional risk factors.
Download or read book Credit Risk and Convertible Bond Pricing written by Judy May-Wai Ho and published by . This book was released on 2001 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing Convertible Bonds with Interest Rate Equity Credit and FX Risk written by Ali Bora Yigitbasioglu and published by . This book was released on 2003 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: Pricing convertible bonds poses numerical challenges that are not easily overcome. We present a quasi five-factor model with interest rate, equity, credit, currency, and local volatility risk. This is implemented using unconditionally stable PDE methods. We extend a method to address credit risk, and propose a means to deal with cross-currency convertibles. A procedure for extracting the price of vanilla options struck on foreign stock in domestic currency is employed to obtain local volatility. This is useful for pricing primary issue and secondary market convertibles whose maturities may be spanned by the currency and equity options markets. We facilitate numerical convergence with Wolfe's (1959) quadratic minimization algorithm, which assists in smoothening local volatility. Coupons, dividends, calls/puts, and reset clauses are easily accommodated. We allow a functional relationship between stock price and credit spread, to capture the negative correlation between spreads and equity.
Download or read book Pricing Convertible Bonds with Credit Risk and Liquidity Risk written by 許典玉 and published by . This book was released on 2014 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing Convertible Bonds with Dividend Protection Subject to Credit Risk Using a Numerical PDE Approach written by Qingkai Mo and published by . This book was released on 2006 with total page 184 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop a pricing model for convertible bonds with dividend protection subject to credit risk by extending the models developed by Tsiveriotis and Fernandes (TF), and by Ayache, Forsyth and Vetzal (AFV). We consider two techniques to incorporate the dividend protection feature: Conversion Ratio Adjustment and Dividend Pass-Thru. We apply finite difference methods to discretize the PDEs associated with our models, and study the Projected Successive Over-Relaxation and penalty methods to handle the free boundaries. We compare these two methods in terms of convergence rate, number of iterations per time step and computation time for pricing convertible bonds without dividends. Finally we apply the penalty method, the better of the two methods, to solve the systems arising from our models for convertible bonds with dividend protection. We examine the convergence rates and discuss the difference between the results from the extended TF and AFV models, with both dividend protection techniques.
Download or read book Pricing Convertible Bonds with Dividend Protection Sugjet to Credit Risk Using a Numerical PDE Approach written by Qingkai Mo and published by . This book was released on 2006 with total page 182 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Pricing and Hedging Credit Risk in Convertible Bonds written by and published by . This book was released on 1999 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Are Convertible Bonds Underpriced written by Manuel Ammann and published by . This book was released on 2016 with total page 28 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the pricing performance of three convertible bond pricing models on the French convertible bond market using daily market prices. We examine a component model separating the convertible bond into a bond and option component, a method based on the Margrabe model for pricing exchange options, and a binomial-tree model with exogenous credit risk. All three models are found to deliver theoretical values for the analyzed convertible bonds that tend to be higher than the observed market prices. The prices obtained by the binomial-tree model are nearest to market prices and the mispricing is no longer statistically significant for the majority of bonds in our sample. For all models, the difference between market and model prices is greater for out-of-the money convertibles than for at- or in-the-money convertibles.
Download or read book The Handbook of Hybrid Securities written by Jan De Spiegeleer and published by John Wiley & Sons. This book was released on 2014-05-19 with total page 421 pages. Available in PDF, EPUB and Kindle. Book excerpt: Introducing a revolutionary new quantitative approach to hybrid securities valuation and risk management To an equity trader they are shares. For the trader at the fixed income desk, they are bonds (after all, they pay coupons, so what's the problem?). They are hybrid securities. Neither equity nor debt, they possess characteristics of both, and carry unique risks that cannot be ignored, but are often woefully misunderstood. The first and only book of its kind, The Handbook of Hybrid Securities dispels the many myths and misconceptions about hybrid securities and arms you with a quantitative, practical approach to dealing with them from a valuation and risk management point of view. Describes a unique, quantitative approach to hybrid valuation and risk management that uses new structural and multi-factor models Provides strategies for the full range of hybrid asset classes, including convertible bonds, preferreds, trust preferreds, contingent convertibles, bonds labeled "additional Tier 1," and more Offers an expert review of current regulatory climate regarding hybrids, globally, and explores likely political developments and their potential impact on the hybrid market The most up-to-date, in-depth book on the subject, this is a valuable working resource for traders, analysts and risk managers, and a indispensable reference for regulators
Download or read book Convertible Bond Valuation and Pricing written by Marc A. Shivers and published by . This book was released on 2003 with total page 172 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book On Convergence of Numerical Methods for Pricing Convertible Bonds written by Dongyi Li and published by . This book was released on 2007 with total page 288 pages. Available in PDF, EPUB and Kindle. Book excerpt: In this thesis two frameworks are considered to value convertible bonds with credit risk: the TF model (Tsiveriotis and Fernandes) and the AFV model (Ayache, Forsyth and Vetzal). Both models are associated with a pair of coupled partial differential equations (PDEs) with free boundary constraints. In practice, the projected overrelaxation method and the penalty method are widely used to solve such free-boundary value problems, and the Crank-Nicolson time-stepping scheme is adopted as the underlying discretization method to achieve quadratic precision. However, due to the complexity of the PDEs in these two models and discontinuities in practice present in the boundary conditions, only linear convergence is observed in many cases. The objective of this thesis is to investigate the difficulties related to convergence and stability when solving these coupled PDEs with the Crank-Nicolson scheme, and to suggest some modifications of the basic schemes to improve stability and restore quadratic convergence.
Download or read book Pricing convertible bonds with equity interest and credit risk written by Priyesh K. Patel and published by . This book was released on 2007 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Convertible Arbitrage written by Nick P. Calamos and published by John Wiley & Sons. This book was released on 2011-01-19 with total page 306 pages. Available in PDF, EPUB and Kindle. Book excerpt: Minimize risk and maximize profits with convertible arbitrage Convertible arbitrage involves purchasing a portfolio of convertible securities-generally convertible bonds-and hedging a portion of the equity risk by selling short the underlying common stock. This increasingly popular strategy, which is especially useful during times of market volatility, allows individuals to increase their returns while decreasing their risks. Convertible Arbitrage offers a thorough explanation of this unique investment strategy. Filled with in-depth insights from an expert in the field, this comprehensive guide explores a wide range of convertible topics. Readers will be introduced to a variety of models for convertible analysis, "the Greeks," as well as the full range of hedges, including titled and leveraged hedges, as well as swaps, nontraditional hedges, and option hedging. They will also gain a firm understanding of alternative convertible structures, the use of foreign convertibles in hedging, risk management at the portfolio level, and trading and hedging risks. Convertible Arbitrage eliminates any confusion by clearly differentiating convertible arbitrage strategy from other hedging techniques such as long-short equity, merger and acquisition arbitrage, and fixed-income arbitrage. Nick Calamos (Naperville, IL) oversees research and portfolio management for Calamos Asset Management, Inc. Since 1983 his experience has centered on convertible securities investment. He received his undergraduate degree in economics from Southern Illinois University and an MS in finance from Northern Illinois University.
Download or read book Handbook of Hybrid Instruments written by Israel Nelken and published by John Wiley & Sons. This book was released on 2000-07-26 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: An indispensable tool to steer readers thought the complex maze of hybrid instruments! Hybrid instruments - essentially bonds with an equity component - are found in a multitude of guises. This generic heading encompasses a seemingly endless array of financial instruments, including convertible bonds, mandatory convertibles, reverse convertibles, preferred shares, ELKS, DECS and Lyons. Within each one of these instruments are found a wide range of variations and features. These include reset, negative pledge, screw and forced conversion clauses, as well as step up coupons, call schedules, call options with soft and hard protection etc. The range of possibilities can seem bewildering, but it is this very flexibility which proves a huge attraction for investors, issuers and financial institutions. On the sell side companies issue these securities and corporate service departments advise on the type of options to include in them. On the buy side, investment managers seek to build portfolios with limited risk exposure using these securities and hedge funds utilise arbitrage opportunities between the convertible bond and the common share. The opportunities are endless but the seemingly labyrinthine complexities can prove daunting. The Handbook of Hybrid Instruments helps steer a clear path through the maze. Izzy Nelken has drawn together a team of experts to provide in-depth analysis of many of the key issues that both sellers and buyers require in order to operate effectively and profitably. A general introduction is followed by specific information on key clauses and variations, valuation methods, the impact on a firm's value following the public issuance of convertibles, details on when an issuer should call a convertible and the impact of these provisions on the price, the difficult requirement of input data to make sense of the models, indexes and reset convertibles. Finally, a highly useful glossary is provided of all the key terms used in this field. An analytical CD is also provided with the book, containing sample software of ConvB++. ConvB++ combines complex state of the art models with a simple, user friendly interface to assess fair values prices and to hedge parameters of hybrid instruments. The Handbook of Hybrid Instruments is an indispensable explanatory and analytical tool for all professionals looking for the latest thinking on convertibles from some of the world's leading experts.
Download or read book The Pricing and Hedging of Convertible Bonds with Credit Risk written by and published by . This book was released on 2005 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
