Pricing Convertible Bonds with Counterparty Credit Risk in a Reduced-Form Model

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.