Dividends sharing convertible bonds pricing and numerical evaluation

MaRDI QIDQ474291zbMATH OpenFDO

Authors Haiyang Wang, Xu Guo

Publication date 24 November 2014

Published in Mathematical Problems in Engineering (Search for Journal in Brave)

Mathematics Subject Classification ID

Derivative securities (option pricing, hedging, etc.) (91G20) Numerical methods (including Monte Carlo methods) (91G60)

Review text

Summary: The convertible bond is becoming one of the most important financial instruments for the company to raise capital fund since it was first issued by American New York Erie Company in 1843. In this paper, it is the first time to study the pricing problem for convertible bond whose underlying stocks pay dividends via the reflected backward stochastic differential equations. Associating the solutions of reflected BSDEs with the obstacle problems for nonlinear parabolic PDEs, we establish the pricing formulas for convertible bonds with continuous and discrete dividends by means of the viscosity solutions for some PDEs. Besides, we also derive the price of convertible bonds with higher borrowing rate which is realistic in the financial market. Then the numerical evaluations are provided by the radial basis functions method. Moreover, we discuss the influence of dividends paying as well as higher borrowing rate on the convertible bond price at last.

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Cited in

(4)

• Convertible bonds with higher loan rate: model, valuation, and optimal strategy
• The martingale pricing for convertible bonds with dividend-paying under stochastic interest
• scientific article; zbMATH DE number 1031246 (Why is no real title available?)
• Pricing convertible bonds under expectation of ownership-split reform

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