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The Valuation of Convertible Bonds with the Reset Clauses——Modification Based on AFV Model

Zhang Qing-hua

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Abstract

Currently,the research on convertible bonds in literatures is all based on foreign models and makes modification according to China's reality.When we study the pricing convertible bonds,it is necessary to consider the Reset Clauses of pricing convertible bonds.Based on AFV Model,this paper establishes pricing model of convertible bonds including reset clauses for pricing convertible bonds,uses finite difference method to solve the numerical calculation and sufficiently demonstrates that the influence of Reset Clauses of pricing convertible bonds on the pricing convertible bonds can not be ignored.

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What this paper is about

Currently,the research on convertible bonds in literatures is all based on foreign models and makes modification according to China's reality.When we study the pricing convertible bonds,it is necessary to consider the Reset Clauses of pricing convertible bonds.Based on AFV Model,this paper establishes pricing model of convertible bonds including reset clauses for pricing convertible bonds,uses finite difference method to solve the numerical calculation and sufficiently demonstrates that the influence of Reset Clauses of pricing convertible bonds on the pricing convertible bonds can not be ignored.

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Available abstract

Currently,the research on convertible bonds in literatures is all based on foreign models and makes modification according to China's reality.When we study the pricing convertible bonds,it is necessary to consider the Reset Clauses of pricing convertible bonds.Based on AFV Model,this paper establishes pricing model of convertible bonds including reset clauses for pricing convertible bonds,uses finite difference method to solve the numerical calculation and sufficiently demonstrates that the influence of Reset Clauses of pricing convertible bonds on the pricing convertible bonds can not be ignored.

Key concepts: Convertible bond, Convertible arbitrage, Reset (finance), Valuation (finance), Convertible, Embedded option, Bond, Financial economics

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