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This paper derives analytical and semi-analytical pricing formulas for convertible bond with reset clause of American type. The reset time is first passage time of stock price to reset level. Two formulaes are obtained under different assumptions through different approaches. One in the situation of constant short interest rate, the other with stochastic interest rate in Vasicek Model. The two pricing...
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...
By the martingale theory and transformation of probability measures, this paper obtains the analytical solution of the price of the convertible bond whose conversion price may reset at a predetermined time. The interest rate here follows an extended Vasicek model. In the numerical result, we find that the Monte Carlo method is efficient. Numerical result also shows that the correlated coefficient...
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