Abstract and Applied Analysis

Convertible Bonds with Higher Loan Rate: Model, Valuation, and Optimal Strategy

Haiyang Wang and Zhen Wu

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Abstract

We study the pricing problem for convertible bonds via backward stochastic differential equations (BSDEs). By virtue of reflected BSDEs and Malliavin derivatives, we establish the formulae for the fair price of convertible bonds and the hedging portfolio strategy explicitly. We also obtain the optimal conversion time when there is no dividends-paying for underlying common stocks. Furthermore, we consider the case that the loan rate is higher than riskless interest rate in a financial market, and conclude that it does not affect the price of convertible bonds actually. To illustrate our results, some numerical simulations are given and discussed at last.

Article information

Source
Abstr. Appl. Anal., Volume 2014, Special Issue (2014), Article ID 341519, 9 pages.

Dates
First available in Project Euclid: 6 October 2014

Permanent link to this document
https://projecteuclid.org/euclid.aaa/1412605856

Digital Object Identifier
doi:10.1155/2014/341519

Mathematical Reviews number (MathSciNet)
MR3200777

Zentralblatt MATH identifier
07022188

Citation

Wang, Haiyang; Wu, Zhen. Convertible Bonds with Higher Loan Rate: Model, Valuation, and Optimal Strategy. Abstr. Appl. Anal. 2014, Special Issue (2014), Article ID 341519, 9 pages. doi:10.1155/2014/341519. https://projecteuclid.org/euclid.aaa/1412605856


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