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 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 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 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 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 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 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 Valuation of Convertible Bonds when Investors Act Strategically written by Christian Koziol and published by Springer Science & Business Media. This book was released on 2012-12-06 with total page 216 pages. Available in PDF, EPUB and Kindle. Book excerpt: Christian Koziol shows that various conversion strategies for convertible bonds can be optimal which result in different values for stocks and convertible bonds. A comparative static analysis examines the differences between the properties of the optimal conversion strategies and between the asset values for three conversion variants.

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 The Handbook of Fixed Income Securities Chapter 60 Convertible Securities and Their Valuation written by Frank Fabozzi and published by McGraw Hill Professional. This book was released on 2005-04-15 with total page 53 pages. Available in PDF, EPUB and Kindle. Book excerpt: From The Handbook of Fixed Income Securities--the most authoritative, widely read reference in the global fixed income marketplace--comes this sample chapter. This comprehensive survey of current knowledge features contributions from leading academics and practitioners and is not equaled by any other single sourcebook. Now, the thoroughly revised and updated seventh edition gives you the facts and formulas you need to compete in today's transformed marketplace. It places increased emphasis on applications, electronic trading, and global portfolio management.

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 Securities written by Montgomery Rollins and published by . This book was released on 1908 with total page 218 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 An Analytic Method Pricing Convertible Bonds written by Binghua Huang and published by . This book was released on 2015 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: We develop analytic method using equivalent path decomposition for convertible bonds (CBs) with call and put provision. Since CBs embedded options are strictly path-dependent, equivalent path decomposition can clearly identify the risk exposure, and completely replicate the payoff features of CBs. Compared to simulation methods and lattice-based numerical methods, our method provides ordinary investors with an effective tool to analyze the effects and interactions of the different provisions contained in CBs. Finally we extend to pricing CBs with call protection.

Download or read book International Handbook of Convertible Securities written by Thomas Noddings and published by Routledge. This book was released on 2013-12-16 with total page 390 pages. Available in PDF, EPUB and Kindle. Book excerpt: First published in 2001. The revision of this important work contains all new data on the long-overlooked convertible securities market. It offers invaluable information on the analytical as well as the statistical tools which investors need to add quality to their investment portfolios. Topics include: * Convertible securities as an asset class and as an alternative investment * Market capitalization of convertible securities * An overview of the equity warrant market * Special provisions in the warrant markets * Finding undervalued warrants * Convertible bond hedging strategies * Portfolio management.

Download or read book The Valuation of Convertible Bonds Classic Reprint written by Otto H. Poensgen and published by . This book was released on 2015-08-05 with total page 70 pages. Available in PDF, EPUB and Kindle. Book excerpt: Excerpt from The Valuation of Convertible Bonds Convertible Bonds are bonds that are convertible into another security at the option of the holder subject to conditions specified in the indenture, For our paper we will restrict the term 'convertible' to mean exchangeable for 'the common stock of the issuing corporation.' The restriction is not a stringent one: the author in examining publicly traded bonds issued between 1948 and 1963 by companies that are traded on an organized stock exchange (or over the counter) found no bonds which were excluded by that definition. The vast majority of nation-wide traded convertible bonds is not only unsecured, but even subordinated to prior or even after-acquired debt. Deducing from cum hoc to ergo propter hoc this has led many writers to state or hypothesize that one of the reasons, if not the principal one, to attach to the bond the convertibility feature was the necessity to have a sweetener make an otherwise unpalatable instrument acceptable to the investor. The conversion price indicates how many dollars of face value must be given up at conversion for each common share. Occasionally, we find a conversion ratio instead, stating into how many shares one debenture of $1,000. About the Publisher Forgotten Books publishes hundreds of thousands of rare and classic books. Find more at www.forgottenbooks.com This book is a reproduction of an important historical work. Forgotten Books uses state-of-the-art technology to digitally reconstruct the work, preserving the original format whilst repairing imperfections present in the aged copy. In rare cases, an imperfection in the original, such as a blemish or missing page, may be replicated in our edition. We do, however, repair the vast majority of imperfections successfully; any imperfections that remain are intentionally left to preserve the state of such historical works.