Pricing Convertible Bonds with Counterparty Credit Risk in a Reduced-Form Model
XU Yajuan, WANG Guojing
The Center for Financial Engineering and Department of Mathematics, Soochow University; School of Mathematics and Physics, Suzhou Vocational
University
This paper studies the price of convertible bonds with
counterparty credit risk in a reduced-form model. We suppose that the default intensity
process and the interest rate process follow the Vasicek model, and derive the price
expression of convertible bonds using the method of measure changes. Moreover, we make
some numerical analysis on the explicit formulae to demonstrate the sensitivity of a
convertible bond price to changes in the parameters of the model.
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XU Yajuan, WANG Guojing. Pricing Convertible Bonds with Counterparty Credit Risk in a Reduced-Form Model. CHINESE JOURNAL OF APPLIED PROBABILITY AND STATIST, 2016, 32(5): 476-488.
