2011 | OriginalPaper | Buchkapitel
Convertible Bonds in a Defaultable Diffusion Model
verfasst von : Tomasz R. Bielecki, Stéphane Crépey, Monique Jeanblanc, Marek Rutkowski
Erschienen in: Stochastic Analysis with Financial Applications
Verlag: Springer Basel
Aktivieren Sie unsere intelligente Suche, um passende Fachinhalte oder Patente zu finden.
Wählen Sie Textabschnitte aus um mit Künstlicher Intelligenz passenden Patente zu finden. powered by
Markieren Sie Textabschnitte, um KI-gestützt weitere passende Inhalte zu finden. powered by
In this paper, we study
convertible securities
(CS) in a primary market model consisting of: a savings account, a stock underlying a CS, and an associated CDS contract (or, alternatively to the latter, a
rolling CDS
more realistically used as an hedging instrument). We model the dynamics of these three securities in terms of Markovian diffusion set-up with default. In this model, we show that a doubly reflected Backward Stochastic Differential Equation associated with a CS has a solution, meaning that super-hedging of the arbitrage value of a convertible security is feasible in the present setup for both issuer and holder at the same initial cost, and we provide the related (super-)hedging strategies. Moreover, we characterize the price of a CS in terms of viscosity solutions of associated variational inequalities and we prove the convergence of suitable approximation schemes. We finally specify these results to convertible bonds and their straight bond and game exchange option components, and provide numerical results.