Download or read book Pricing Convertible Bonds with Monte Carlo Simulation written by Christian Wilde and published by . This book was released on 2008 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper proposes a pricing model that values convertible bonds with Monte Carlo simulation. The optimal exercise boundaries for the embedded American-style conversion, call, and put options are inferred from the conditional expected value of continuation which is obtained by least-squares regressions in combination with a backward-induction procedure. The simulation-based pricing method is more flexible than traditional valuation approaches based on finite differences and binomial trees. It allows to better model the dynamics of the underlying state variables and to account for the specifications of the instrument, such as the path dependencies inherent in many callable convertible bonds. Credit risk is accounted for by directly modelling the possibility of default.

Download or read book Simulation Based Pricing of Convertible Bonds written by Manuel Ammann and published by . This book was released on 2016 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose and empirically study a pricing model for convertible bonds based on Monte Carlo simulation. The method uses parametric representations of the early exercise decisions and consists of two stages. Pricing convertible bonds with the proposed Monte Carlo approach allows us to better capture both the dynamics of the underlying state variables and the rich set of real-world convertible bond specifications. Furthermore, using the simulation model proposed, we present an empirical pricing study of the US market, using 32 convertible bonds and 69 months of daily market prices. Our results do not confirm the evidence of previous studies that market prices of convertible bonds are on average lower than prices generated by a theoretical model. Similarly, our study is not supportive of a strong positive relationship between moneyness and mean pricing error, as argued in the literature.

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 Monte Carlo Simulation with Machine Learning for Pricing American Options and Convertible Bonds written by Bella Dubrov and published by . This book was released on 2015 with total page 50 pages. Available in PDF, EPUB and Kindle. Book excerpt: Li, Szepesvari and Schuurmans (2009) show that reinforcement learning (RL) algorithms are superior to the classical methods (such as Longstaff and Schwartz (2001)) in pricing American options using Monte Carlo simulation. We extend their techniques to the problem of pricing convertible bonds and show that RL outperforms LS on this task. Additionally, we propose a new method, based on the random forest algorithm from machine learning [Breiman (2001)], that can be used for pricing both American options and convertible bonds with Monte Carlo simulation. We show that this algorithm outperforms LS and is also superior to RL in most cases. We demonstrate how to use Monte Carlo simulation with the methods described above for pricing a complex convertible bond trading at the Tel Aviv stock exchange. Like many Israeli convertibles, this bond exhibits the "gradually diminishing principal" feature, meaning that instead of one payment of the principal at maturity, there are multiple principal payments during the lifetime of the bond. This feature presents a challenge to existing models. We also model other exotic features of this bond, such as path-dependent conversion ratio and exchange rate indexation. The prices that we obtain using this model are close to the market prices of the bond.

Download or read book A Simulation Based Pricing Method for Convertible Bonds written by Axel H. Kind and published by . This book was released on 2009 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt: We propose a pricing model for convertible bonds based on Monte Carlo simulation that is more flexible than previous lattice-based methods because it allows to better capture the dynamics of the underlying state variables. Furthermore, the model is able to deal with embedded American-style put and call features with path-dependent trigger conditions. The simulation method uses parametric representations of the early exercise decisions and consists of two stages. In the first stage, the parameters representing the exercise strategies are optimized on a set of simulated stock prices. Subsequently, the optimized parameters are applied to a new simulation set to determine the model price. In an empirical analysis, the model is found to provide a better fit compared to previous studies.

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 Monte Carlo Methods for Pricing and Hedging written by Dmitri N. Lvov and published by . This book was released on 2006 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book A Simulation based Pricing Method for Convertible Bonds written by Axel Kind and published by . This book was released on 2003 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Market Price Analysis and Risk Management for Convertible Bonds written by Fuminobu Ohtake and published by . This book was released on 1998 with total page 64 pages. Available in PDF, EPUB and Kindle. Book excerpt:

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 Pricing Contingent Convertible Bonds written by Marc Rüdlinger and published by . This book was released on 2011 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Im vorliegenden Paper wird ein Berechnungsmodel für Contingent Convertible Bonds entwickelt, welches mit Hilfe der Monte Carlo Simulation implementiert wird. Es ist das erste Paper, das ein schlüssiges und einfach zu implementierendes Modell vorstellt, welches CoCo Bond spezifische Eigenschaften wie Conversion, Callability, Resettable Coupons, Minimum Conversion Prices und Potential Dilution mit einbezieht. Das vorgeschlagene Modell beruht auf drei Hauptannahmen. Erstens, die Wahrscheinlichkeit einer Wandlung ist vollumfänglich vom jeweiligen Aktienkurs abhängig. Zweitens, CoCo Bonds können nicht per se ausfallen, da in solch einem Fall eine vorgängige Wandlung in Aktien stattfindet. Daher wird das Risiko dieser Struktur vollständig vom Aktienkurs bestimmt. Aufgrund dieses zweiten Arguments können wir das Konzept der risikoneutralen Bewertung anwenden. Drittens, der Aktienkurs wird durch einen Jump-Diffusion Prozess beschrieben. Dividenden und die Zinskurve werden geschätzt. Das Berechnungsmodell wird in der Standardsoftware MATLAB implementiert. Es wird verwendet, um den ersten in der Schweiz emittierten CoCo Bond der Credit Suisse zu analysieren. Die Resultate zeigen, dass das vorgeschlagene Modell den Preis eines CoCos akkurat bestimmen kann. Zusätzlich zeigen Sensitivitätsanalysen auf, dass das Modell ebenfalls die Sensitivitäten der Struktur bezüglich verschiedener Risikofaktoren gut erfasst. Es kann daher hilfreich sein, das Verständnis von Investoren in Bezug auf diese neue Struktur zu verbessern.

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 Callable Convertible Bond Valuation Framework and VIC Case written by Binh Dao and published by . This book was released on 2014 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: Convertible bond, a hybrid instrument that offers the holders both fixed income of straight debt and capital gain of equity via attachment of the right to convert to common shares of issuing companies, has recently been issued in mass by important Vietnamese banks and groups. To account for this growing trend, this paper aims to help market participants to gain more insight on the products as well as the possible methods of pricing. The authors first describe the characteristics and risks of convertible bond in general and callable convertible bond in particular. Secondly, due to the fact that Vietnam convertible market is very much it its early stage, analytical tools are vital to assist participants in the estimation of fair value for the bonds. Therefore, the authors propose the use of three approaches with varying degree of difficulty, efficiency, etc. to price a typical callable convertible bond, together with the case application of a famous Vietnamese enterprise, Vincom Joint Stock Company. They are Lattice models including Binomial Tree and Trinomial Tree, Black-Scholes based Component model and Monte Carlo simulation.

Download or read book The Handbook of Convertible Bonds written by Jan De Spiegeleer and published by Wiley. This book was released on 2011-03-14 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 Applying the Arm s Length Principle to Intra group Financial Transactions written by Robert Danon and published by Kluwer Law International B.V.. This book was released on 2023-08-29 with total page 1053 pages. Available in PDF, EPUB and Kindle. Book excerpt: It is well known that intercompany financing arrangements have become increasingly subject to scrutiny in contexts of applying transfer pricing and anti-tax avoidance-related rules. With contributions by more than 50 leading global transfer pricing and international tax experts from law firms, multinational enterprises, academia, and tax administrations, this book provides unparalleled insights into the application of the Arm’s Length Principle to different types of financial transactions, application of anti-avoidance rules to various intra-group financial arrangements as well as the business value creation process and the dispute management landscape that underlie intra-group financial transactions. With in-depth analysis of the legislation and market developments that fuel the diverse range of financing options available to market participants – and loaded with practical examples and case studies that cover the legal and economic considerations that arise when analysing intra-group finance – the contributors examine such topics and issues as the following: national anti-abuse rules applicable to financial transactions; tax treaty issues; role of credit ratings and impact of implicit support; loans, cash pooling, financial guarantees; transfer pricing aspects of performance guarantees; ‘mezzanine’ financing; considerations for crypto financing; impact of crises situations such as COVID-19; how treasury operations can be structured in a group and the decision-making process involved; how hedges offset or mitigate risks; how to apply the arm’s length principle to factoring and captive insurance transactions; comparability analysis for various transactions; special considerations for transactions carried out by a permanent establishment; EU state aid and its interaction with transfer pricing rules; dispute prevention and resolution tools under the OECD, UN, and EU frameworks; and developing countries’ perspectives, focusing on Brazil, India, and South Africa. Given the challenges facing taxpayers and tax authorities alike, this book will prove an immeasurably valuable reference guide to support tax practitioners, tax administrations, and tax scholars in developing standards and policies in dealing with intra-group financing issues.

Download or read book Pricing Convertible Bonds written by Kevin B. Connolly and published by Wiley. This book was released on 1998-10-15 with total page 272 pages. Available in PDF, EPUB and Kindle. Book excerpt: The Convertible Bonds (CB) market is growing all the time. To date, over one trillion dollars worth of CBs are in circulation. Corporations are finding this source of fund-raising more and more attractive. And for different reasons, the buyers are finding CBs increasingly attractive investment vehicles. There are few works on the subject of pricing convertible bonds. Most books discussing derivative products cover all details of pricing futures and options in minute detail. Convertible bonds and warrants are usually mentioned as an after thought in the latter chapters. This is the first book to address the very complex issue of pricing convertible bonds. Kevin Connolly, Researcher of complex volatility trading for Refco Overseas Ltd. and Lecturer at City University Business School and London Guildhall University, has put together an excellent treatment of pricing convertible bonds, delving into topics such as: * Returns distributions and associated descriptive statistics * Modeling the share price process * The basic convertible bond model * Introducing the complications * Convertible bond sensitivities * Using equity warrant models to price CBs * Refix clauses Fund managers, hedge players/traders, undergraduates and postgraduates will find this book invaluable. Easy to understand software on Microsoft Excel spreadsheets is also supplied.

Download or read book An Analysis of the Nature of Convertible Bonds written by Gary Ralph Stone and published by . This book was released on 1967 with total page 268 pages. Available in PDF, EPUB and Kindle. Book excerpt: