Marco Marchioro

Learning Quantitative Finance with QuantLib

A random-spread model for fixed-to-floater convertible bonds Add Video

We compute the price of bonds convertible to floating-rate notes where the credit spread is mostly responsible for the convertibility option. First we determine the sketchiness of deterministic models for credit spreads. Then we define a stochastic credit model that provides a better approximation for the bond price in a wide range of market conditions. Finally, we show how the stochastic model is analytically tractable when the credit spread normally distributed and provide some numerical results for the credit sensitivity and the computation of Value at Risk.

Posted by Marco Marchioro on October 14, 2013 at 4:00 AM 2033 Views

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