Monte Carlo Bounds for Game Options Including Convertible Bonds

Simulation-Based Pricing of Convertible Bonds

We propose and empirically study a pricing model for convertible bonds based on Monte Carlo simulation. The method uses parametric representations of the early exercise decisions and consists of two stages. Pricing convertible bonds with the proposed Monte Carlo approach allows us to better capture both the dynamics of the underlying state variables and the rich set of real-world convertible bo...

A Fourier transform-based method for convertible bonds in a jump diffusion setting with stochastic interest rates

The paper proposes a fast Fourier transform (FFT) pricing algorithm for convertible bonds in a framework which comprises firm value, evolving as an exponential jump diffusion, and correlated stochastic interest rates movements. This is a novel numerical technique for the convertible bonds literature and aims at fixing dimensionality and convergence limitations previously reported for popular gr...

Valuation of Game Options in Jump-Diffusion Model and with Applications to Convertible Bonds

Game option is an American-type option with added feature that the writer can exercise the option at any time before maturity. In this paper, we consider some type of game options and obtain explicit expressions through solving Stefanfree boundary problems under condition that the stock price is driven by some jump-diffusion process. Finally, we give a simple application about convertible bonds.

Arbitrage Pricing of Defaultable Game Options with Applications to Convertible Bonds

Application of Monte Carlo Simulation in the Assessment of European Call Options

In this paper, the pricing of a European call option on the underlying asset is performed by using a Monte Carlo method, one of the powerful simulation methods, where the price development of the asset is simulated and value of the claim is computed in terms of an expected value. The proposed approach, applied in Monte Carlo simulation, is based on the Black-Scholes equation which generally def...