6 votes

Ito lemma of Convertible Bond under Two-factor Model Interest Rate

Let $V(t, r_t, S_t)$ be the convertible bond price at time $t$, where \begin{align*} dS_t &= S_t(r_t dt + \sigma dW_t^1)\\ dr_t &=\kappa(\theta-r_t)dt+\Sigma dW_t^2, \end{align*} and where $\{...
Gordon's user avatar
  • 21.1k
5 votes

Is there any source that describes Wall Street quotation conventions for fixed income securities (e.g. corporate bonds)?

To supplement @Dimitri's excellent answer, I recommend a little booklet called "Government Bond Outlines," published by JPMorgan's index team. This is easily obtainable from JPMorgan's ...
Helin's user avatar
  • 11.7k
5 votes

Is there any source that describes Wall Street quotation conventions for fixed income securities (e.g. corporate bonds)?

There is no authoritative source. If you're dealing with vast quantities of diverse bond quotes, then it's very hard to interpet them correctly all the time, although you might get be right most of ...
Dimitri Vulis's user avatar
4 votes
Accepted

Why does changing the step size in my Binomial Tree changes the final stock prices so much?

You only got one minor bug, but let me explain why the range increases. Let us denote $n:=timesteps$, then You are looping one iteration too little when filling your $S$ matrix array, causing you to ...
Pontus Hultkrantz's user avatar
3 votes

What is the "maturity" of an "investment option"?

The maturity of an investment is the end date of the contract. For example, you can buy a bond that pays P*(1+r) one year from now, where P is the price you pay, r is the interest rate, and the day ...
python_enthusiast's user avatar
3 votes

How should we calculate the duration of a convertible bond?

Unfortunately, convertible bonds are quite complex so you don't have simple formulas or approaches as with vanilla bonds. However, this does not mean you are powerless. You can follow different ...
Mario Marra's user avatar
3 votes
Accepted

QuantLib convertible bond pricing generates strange delta

You have a conversion ratio of $100/12.1 \approx 8.26$, so the convertibility is an option on about 8 underlying stocks and the delta scales accordingly. I'm not familiar about the way it's quoted, ...
Luigi Ballabio's user avatar
3 votes

Finding new convert issuances

NIM5 , will pull up equity linked securities and you can input a date range if you toggle the Issue History radio button.
AlRacoon's user avatar
  • 6,447
2 votes

Is it possible to model path-dependent clauses using finite difference methods?

If you are asking whether it is possible to price path-dependent American options in tree based models, the short answer is yes. You simply construct your tree/grid and evaluate the rules in each node ...
AdB's user avatar
  • 704
2 votes

What is the "maturity" of an "investment option"?

The Theory of Corporate Finance is an academic field that tries to explain theoretically why companies issue the kinds of securities they do. The simplest company, a steady state business that earns ...
nbbo2's user avatar
  • 11.2k
1 vote

Aggregating greeks to portfolio level

In a restricted sense, you can only add Greeks of the same underlying. The Greeks in the Black-Scholes-Merton model are partial derivatives of Option Price against its own variables (time to ...
André Bittencourt's user avatar
1 vote

Struggling with Modeling Convertible Bond using Python

I have recently released a Python financial library called FinancePy. It has a convertible bond model implementation. It is still in beta so may have some bugs but you are welcome to try it out. It ...
Dom's user avatar
  • 2,147
1 vote
Accepted

Newly issued convertible bond conversion price typically higher or lower than current stock price?

I assume below because if now AirBnb is at 19, investor will just convert at 18 and make $1 immediately? Wrong, that call option (the warrant part of the deal) has intrinsic value even if the current ...
Lliane's user avatar
  • 2,908
1 vote

Quantlib - exercise probability function?

OK, here is what I think. (But you should ask for advice from others in this forum or elsewhere). You computed $\frac{dC}{dK}$ (the dual delta) by a discrete approximation. The result is negative and ...
nbbo2's user avatar
  • 11.2k
1 vote

Why do we have to use in-the-money paths in LSMC, and how?

Here's my $1/50. Please be free to raise any suggestions. Don't regress the split cashflows respectively as in TF, just regress the whole continuation value instead. When the bond is in the callable ...
Vim's user avatar
  • 903
1 vote
Accepted

Is it possible to model path-dependent clauses using finite difference methods?

The usual approach to deal with path dependency in finite differences/lattices solvers is to capture the path dependency trough one or more auxiliary variable(s) that make the problem non path ...
Antoine Conze's user avatar
1 vote

Implied credit spread convertible bonds with negative yield

Negative yields will typically be negative do to the value of option (conversion value + time value). If you subtract out the value of that option as determined by a blackscholes model the remaining ...
Brian's user avatar
  • 11
1 vote

Convertible Bond Pricer papers

Barclays technical introduction to Convertibles is a very good start.
Ouadia's user avatar
  • 65
1 vote
Accepted

Convertible Bond in Foreign Currency - Quanto Adjustment

If the USD denominated bond is simply convertible into a “Euro denominated equity” then it is not quanto but composite: upon conversion the bond holder gets $x$ units of equity, where $x$ is the ...
Antoine Conze's user avatar
1 vote

Pricing of convertible bonds

In classical structural modeling, we have that the firm asset value $A(t)$ is the fundamental stochastic variable, following an SDE like the one presented by @Dom $$ \frac{dA}{A} = \mu_A d\,t + \...
Brian B's user avatar
  • 14.8k
1 vote

What is the difference between convertible bond and bond with warrant?

What convertible securities are Convertible securities are typically either bonds or preferred stock that combines typical features of their respective asset class with exposure to price changes in ...
Seohee Park's user avatar

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