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2010•Journal of Nanjing University of Finance and EconomicsRequires access

The Valuation of Convertible Bonds with the Reset Clauses

Chunfa Wang

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Abstract

It is necessary to pricing convertible bonds(CBs) incorporating the Reset Clauses. Especially in the bear market in 2008, many convertible bonds have announced the implementation of the Reset Clauses.This protective effect form which the Reset Clauses to investors can not be ignored.We explicitly take the Reset Clauses into consideration based on the AFV model, and rely on finite difference method.A numerical calculation of the pricing of an example convertible bonds is provided.

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What this paper is about

It is necessary to pricing convertible bonds(CBs) incorporating the Reset Clauses. Especially in the bear market in 2008, many convertible bonds have announced the implementation of the Reset Clauses.This protective effect form which the Reset Clauses to investors can not be ignored.We explicitly take the Reset Clauses into consideration based on the AFV model, and rely on finite difference method.A numerical calculation of the pricing of an example convertible bonds is provided.

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Available abstract

It is necessary to pricing convertible bonds(CBs) incorporating the Reset Clauses. Especially in the bear market in 2008, many convertible bonds have announced the implementation of the Reset Clauses.This protective effect form which the Reset Clauses to investors can not be ignored.We explicitly take the Reset Clauses into consideration based on the AFV model, and rely on finite difference method.A numerical calculation of the pricing of an example convertible bonds is provided.

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

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