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Monte Carlo Bounds for Game Options Including Convertible Bonds

Author

Listed:
  • Christopher Beveridge

    (Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia)

  • Mark Joshi

    (Centre for Actuarial Studies, Department of Economics, University of Melbourne, Victoria 3010, Australia)

Abstract

We introduce two new methods to calculate bounds for zero-sum game options using Monte Carlo simulation. These extend and generalize upper-bound duality results to the case where both parties of a contract have Bermudan optionality. It is shown that the primal-dual simulation method can still be used as a generic way to obtain bounds in the extended framework, and we apply the new results to the pricing of convertible bonds by simulation. This paper was accepted by Wei Xiong, finance.

Suggested Citation

  • Christopher Beveridge & Mark Joshi, 2011. "Monte Carlo Bounds for Game Options Including Convertible Bonds," Management Science, INFORMS, vol. 57(5), pages 960-974, May.
    • Handle: RePEc:inm:ormnsc:v:57:y:2011:i:5:p:960-974
    DOI: 10.1287/mnsc.1110.1319
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    References listed on IDEAS

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    1. Tomasz Bielecki & Stephane Crepey & Monique Jeanblanc & Marek Rutkowski, 2008. "Arbitrage pricing of defaultable game options with applications to convertible bonds," Quantitative Finance, Taylor & Francis Journals, vol. 8(8), pages 795-810.
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    Cited by:

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    3. Yu Liu & Gongqiu Zhang, 2024. "Valuation Model of Chinese Convertible Bonds Based on Monte Carlo Simulation," Papers 2409.06496, arXiv.org, revised Nov 2024.

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