The valuation of a Euro-Convertible Bond

Author

Lin, Chung-Gee ; Chang, Chuang-Chang ; Yu, Min-Teh

Author_Institution

Dept. of Bus. Math., Soochow Univ., Taipei, Taiwan

fYear

2003

fDate

20-23 March 2003

Firstpage

115

Lastpage

122

Abstract

A Euro-Convertible Bond (ECB) is a hybrid security with the properties of both stock and bond. Further, since there are two currencies involved in this hybrid security, in addition to the conversion option, there is also a currency option embedded. We employed Least Square Monte Carlo simulation (LSM) approach developed by Longstaff and Schwartz (2001) to value ECB. The value of conversion option and currency option embedded in ECB were extracted from the differences between values of pure corporate bond, convertible bond (CB), and ECB. We also investigate the effects of exchange rate volatility, stock price volatility and correlations of state variables to the value of ECB.

Keywords

Monte Carlo methods; costing; financial data processing; least squares approximations; securities trading; stock markets; Euro-Convertible Bond valuation; Least Square Monte Carlo simulation; corporate bond; currencies; exchange rate volatility; hybrid security; stock market; stock price volatility; Asia; Bonding; Cost accounting; Economic indicators; Exchange rates; Finance; Least squares methods; Mathematics; National security; Pricing;

fLanguage

English

Publisher

ieee

Conference_Titel

Computational Intelligence for Financial Engineering, 2003. Proceedings. 2003 IEEE International Conference on

Print_ISBN

0-7803-7654-4

Type

conf

DOI

10.1109/CIFER.2003.1196250

Filename

1196250