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Convertible Bonds: Risks and Optimal Strategies

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  • Huang, Haishi

Abstract

Within the structural approach for credit risk models we discuss the optimal exercise of the callable and convertible bonds. The Vasiček-model is applied to incorporate interest rate risk into the firm’s value process which follows a geometric Brownian motion. Finally, we derive pricing bounds for convertible bonds in an uncertain volatility model, i.e. when the volatility of the firm value process lies between two extreme values.

Suggested Citation

  • Huang, Haishi, 2010. "Convertible Bonds: Risks and Optimal Strategies," Bonn Econ Discussion Papers 07/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
    • Handle: RePEc:zbw:bonedp:072010
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Convertible bond; game option; uncertain volatility; interest rate risk;
    All these keywords.

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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