Posted by
Smith, Dale (Norcross) on
May 10, 2011; 8:24am
URL: http://quantlib.414.s1.nabble.com/FDM-Framework-and-Convertible-Bond-tp32p33.html
Take a look at
http://www.cs.toronto.edu/pub/reports/na/lucy-05-msc.pdfThis implementation discussion may help.
Thanks,
Dale Smith, Ph.D.
Senior Financial Quantitative Analyst
Risk & Compliance
Fiserv.
107 Technology Park
Norcross, GA 30092
Direct NYC: 212-419-3242
Direct Norcross: 678-375-5315
Mobile: 678-982-6599
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-----Original Message-----
From: John Maiden [mailto:
[hidden email]]
Sent: Monday, May 09, 2011 11:24 PM
To:
[hidden email]
Subject: [Quantlib-users] FDM Framework and Convertible Bond
I am interested in trying to adapt the convertible bond model by
Ayache, Forsyth, and Vetzal (The Valuation of Convertible Bonds
with Credit Risk) into the FDM framework, but I'm not sure how to
do it. Specifically, I'm looking at using the PDE in eqn 4.6
from their paper. My problem is incorporating the final term,
which depends on a function of the stock price.
In terms of the FDM framework, there are three functions I
need to define - drift, diffusion, and evolve. Drift and
diffusion I can see from the PDE. Would I add this final
term in the evolve function? In general, how could I
incorporate a PDE that has a f(S) term, where f is
non-linear?
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