Valuing Callable Convertible Bonds: a reduced approach

Florence André-Le Pogamp () and Franck Moraux ()
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Florence André-Le Pogamp: CREM - Centre de recherche en économie et management - UNICAEN - Université de Caen Normandie - NU - Normandie Université - UR - Université de Rennes - CNRS - Centre National de la Recherche Scientifique

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Abstract: This paper analyses the pricing of corporate callable convertible bonds. It reconciles the applicability of the reduced form approach with optimal strategies usually discussed in the structural approach. One demonstrates that some conditions causing rational voluntary conversions may be effectively neglected. The main contribution of the paper is to show that adjusted American Capped Call options well duplicate 'classical' optimal strategies. Numerical experiments are then conducted.

Keywords: Callable convertible bonds; Corporate bonds; Credit risk; Markov Chain; Reduced form model; Optimal Strategies; Voluntary Conversions; Adjusted American Capped Call options (search for similar items in EconPapers)
Date: 2004-06-15
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Citations: View citations in EconPapers (1)

Published in Applied Financial Economics, 2004, 14 (10), pp.743-749

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:halshs-00010137

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