Kariya,T and Tsuda H.(2000).
CB-Time Dependent Markov Model for Pricing Convertible Bonds
Asia-Pacific Financial Markets

abstract

    In this paper, we propose what we call the convertible bond (CB)- time dependent Markov model, which prices N given individual convertible bonds simultaneously, and apply it to Japanese convertible bond data. One of the main features of the model is that it makes full use of the correlation structure of convertible bond prices. The empirical results show that the model well describes individual prices in the market.

    Keywords: convertible bonds, correlation structure, random cash-flow discount function, time-dependent Markov Model.

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