Defaultable Binary Tree Algorithm for Convertible Bond with Finite Maturity

Lin Li; Le Le Wang

doi:10.4028/www.scientific.net/AMR.219-220.165

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HomeAdvanced Materials ResearchAdvanced Materials Research Vols. 219-220Defaultable Binary Tree Algorithm for Convertible...

Defaultable Binary Tree Algorithm for Convertible Bond with Finite Maturity

Abstract:

The credit risk is introduced into the pricing model of convertible bond in this paper. The main results of paper have three aspects: (1) By modifying the dynamic motion of stock, a defaultable stock process is obtained in neutral risk measure, then the pricing model of convertible bond with finite maturity and credit is proposed. (2) The defaultable binary tree algorithm is proposed, and the convergence of algorithm is proved.

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Periodical:

Advanced Materials Research (Volumes 219-220)

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165-169

DOI:

https://doi.org/10.4028/www.scientific.net/AMR.219-220.165

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Online since:

March 2011

Authors:

Lin Li, Le Le Wang

Keywords:

Binary Tree, Convertible Bond, Credit Risk, Default Intensity, Variational Inequity Equation

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