VaR-Based Method on Estimating Convertible Bond's Market Risk

Convertible Bond is a kind of important financial derivative instrument in China, its value includes pure bond value and option value. Supposing the pure bond value remains stable, during a comparatively short period of time, the fluctuation of convertible bond value only depends on that of the embedded option value. While the market risk of the embedded option mainly reflects on its underlying instruments value fluctuation. So the VaR of convertible bond can be calculated through the calculation of the embedded option's VaR. According to the way of financial stochastic process and Monte Carlo simulation.