A structured PDE framework for pricing resettable convertible bonds

Hyuncheul Lim

Quantitative Finance, 2026, vol. 26, issue 3, 419-432

Abstract: We present a unified PDE framework for pricing resettable convertible bonds within the blended-discounting paradigm. The convertible-bond value is decomposed into a risky bond and a separately identified conversion-option component, which admits a closed-form solution in the conversion-only case. Reset clauses are modeled as a matrix-valued degenerate parabolic system, solved through a stable and convergent finite difference scheme. The resulting formulation preserves analytical clarity and computational efficiency.

Date: 2026
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DOI: 10.1080/14697688.2026.2616345

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