 An excellent approximation for the m out of n day provisionQiang Liu and Shuxin Guo The North American Journal of Economics and Finance, 2020, vol. 54, issue C Abstract: The m out of n day provision (MooN) of convertible bonds is difficult to handle. To approximating the MooN better, this paper proposes an approach named the conditional range probability (CRP). CRP is the simulated probability of the MooN being reached within a price range at a future time, conditional on today’s price of the underlying, and can be incorporated into any conventional derivatives pricing method. For a purposely designed exotic call option with a 20 out of 30 day provision, CRP under finite difference is found to outperform significantly several existing approaches and produce a mean pricing error of 1% over a wide range of initial underlying prices for the exotic call. The result implies that finite difference utilizing CRP will yield excellent approximating prices for convertible bonds. Keywords: M out of n day provision; Soft call provision; Simulated conditional range probabilities; Consecutive m out of n day provision; 20 out of 30 day provision (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:54:y:2020:i:c:s1062940820301194 DOI: 10.1016/j.najef.2020.101222 Access Statistics for this article The North American Journal of Economics and Finance is currently edited by Hamid Beladi More articles in The North American Journal of Economics and Finance from Elsevier |
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