A note on “Monte Carlo analysis of convertible bonds with reset clause” |
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| Authors: | Jingyang Yang Yoon Choi Shenghong Li Jinping Yu |
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| Institution: | aDepartment of Mathematics, Zhejiang University, Hangzhou, 310017 Zhejiang, PR China;bDepartment of Finance, College of Business Administration, University of Central Florida, Orlando, FL, United States |
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| Abstract: | Kimura and Shinohara T. Kimura, T. Shinohara, Monte Carlo analysis of convertible bonds with reset clauses, European Journal of Operational Research 168 (2006) 301–310] analyze the value of a non-callable convertible bond with a reset clause. For a reset convertible bond, the conversion ratio is not fixed but depends on the underlying stock price. However, their model does not consider a dilution effect which can result due to changes in the number of shares into which the bond is converted. In this paper, we have developed a new pricing formula for reset convertible bonds that adjusts for dilution. |
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| Keywords: | Pricing Convertible bonds Reset clause Dilution effect |
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