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Please use this identifier to cite or link to this item:
http://hdl.handle.net/2451/26829
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| Title: | Pricing Inflation-Indexed Convertible Bonds with Credit Risk |
| Authors: | Landskroner, Yoram
Raviv, Alon |
| Issue Date: | 30-Oct-2002 |
| Series/Report no.: | S-DRP-02-09 |
| Abstract: | In Issuing convertible bonds has become a popular way of raising capital
by corporations in the last few years. An important subgroup is
convertibles linked to a price index or exchange rate. The valuation
model of inflation-indexed (or equivalently foreign-currency)
convertible bonds derived in this paper considers two sources of
uncertainty allowing both the underlying stock and the
consumer-price-index to be stochastic and incorporates credit risk in
the analysis. We approximate the pricing equations by using a Rubinstein
(1994) three-dimensional binomial tree, and we describe the numerical
solution. We investigate the sensitivity of the theoretical values with
respect to the characteristics of the issuer, the economic environment
and the security’s characteristics (number of principal payments).
Moreover, we demonstrate the usefulness and the limitations of the
pricing model by using inflation-indexed and foreign-currency linked
convertibles traded on the Tel- Aviv stock exchange. |
| URI: | http://hdl.handle.net/2451/26829 |
| Appears in Collections: | Derivatives Research
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