CB – Time Dependent Markov Model for Pricing Convertible Bonds |
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| Authors: | Takeaki Kariya Hiroshi Tsuda |
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| Institution: | (1) Institute of Economic Research, Kyoto University, Kyoto, 606-8501, Japan;(2) Financial Research Group, The NLI Research Institute, 1-1-1 Yuraku-ChoChiyoda-ku, Tokyo, 100-0006, Japan |
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| Abstract: | In this paper, we propose what we call the convertible bond (CB) – timedependent Markov model, which prices N given individual convertible bondssimultaneously, and apply it to Japanese convertible bond data. One of themain features of the model is that it makes full use of the correlationstructure of convertible bond prices. The empirical results show that themodel well describes individual prices in the market. |
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| Keywords: | convertible bonds correlation structure random cash-flow discount function time-dependent Markov Model |
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