Dear all,
I have a question regarding the convertible bond model implement in Quantlib
(and not Tsiveriotis model)
Like Quantlib Model the Goldman model use a conversion probability and a mixture of the riskless and risky rate, it's a bit different in Tsiveriotis tree.
My question in QL the CB model is called "TsiveriotisFernandesLattice", it is a misuse of language, or it is really the model of tsiveriotis and I missed some things ....
(methods/lattices/tflattice.hpp line 110)
// new conversion probability is calculated via backward
// induction using up and down probabilities on tree on
// previous conversion probabilities, ie weighted average
// of previous probabilities.
newConversionProbability[j] =
pd_*conversionProbability[j]+ pu_*conversionProbability[j+1];
// Use blended discounting rate
newSpreadAdjustedRate[j] =
newConversionProbability[j] * riskFreeRate_ +
(1-newConversionProbability[j])*(riskFreeRate_+creditSpread_);
newValues[j] =
(pd_*values[j]/(1+(spreadAdjustedRate[j]*dt_)))
+ (pu_*values[j+1]/(1+(spreadAdjustedRate[j+1]*dt_)));
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