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Finance questions about convertible bonds...
We've been putting together some infrastructure to value convertible
bonds and I have a general finance question about them. My interest in
CB's involve valuation of Shanghai CB's which have conversion ratios
near the current stock price, and they serve somewhat as a put option.
In the case of Shanghai CB's, there is very little risk of default
because only very low-risk companies are allowed to issue bonds, and
they are generally guaranteed by the issuing bank.
Most of the research I've seen on CB's involve modelling defaults, which
makes sense since CB's in Western markets are generally issued by
companies with lower credit ratings.
The relevance to quantlib is that it would be relatively easy for me to
adapt the framework used for finite differencing options to model CB's
without default risk. Modelling CB's with default risk is much harder
since you then have coupled PDE's.
The question is how useful is an engine that models CB's without default
risk generally. It's useful for me, but I was wondering how generally
useful this is.
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Dr. Joseph Wang
Currently looking for China-related quant work
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