Valuation and Strategic Analysis of Convertible Bonds with the Parisian Option Feature Using the Finite Element Method

The hard and soft call constraints complicate the valuation of convertible bonds.The valuation model of convertible bonds with Parisian feature is provided in this paper,and the optimal strategic of the issuer and the holders are analyzed based on the game theory analysis of options.Moreover,the finite element method is adopted to solving the pricing model and the projected successive over-relaxation technique is used to handling the American constraint.Finally,the convertible bonds issued by China Merchants Bank is taken for an example to illustrate how the model works.Results show that notice period and Parisian feature have significant effect on the value of convertible bonds and the optimal policies,which is important for the pricing and designing of convertible bonds.