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Critical Analysis of the Binomial-Tree Approach to Convertible Bonds in the Framework of Tsiveriotis-Fernandes Model


Krasimir Milanov


Bulgarian Academy of Sciences, Institute of Mathematics and Informatics; FinAnalytica

Ognyan Kounchev


Bulgarian Academy of Sciences and IZKS-University of Bonn
October 24, 2011


Abstract:     
In the present paper we show that the Binomial-tree approach for pricing, hedging, and risk assessment of Convertible bonds in the framework of the Tsiveriotis-Fernandes model has serious drawbacks.

Number of Pages in PDF File: 25

Keywords: Convertible bonds, Binomial tree, Tsiveriotis-Fernandes model, Convertible bond pricing, Convertible bond Greeks, Convertible Arbitrage, Delta-hedging of Convertible bonds, Risk Assessment of Convertible bonds

JEL Classification: G12, G10, G13

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Date posted: October 22, 2011 ; Last revised: October 9, 2012

Suggested Citation

Milanov, Krasimir and Kounchev, Ognyan, Critical Analysis of the Binomial-Tree Approach to Convertible Bonds in the Framework of Tsiveriotis-Fernandes Model (October 24, 2011). Available at SSRN: http://ssrn.com/abstract=1946952 or http://dx.doi.org/10.2139/ssrn.1946952

Contact Information

Krasimir Milanov
Bulgarian Academy of Sciences, Institute of Mathematics and Informatics ( email )
Acad. G. Bonchev str. 8
Sofia, 1113
Bulgaria
FinAnalytica
Ognyan Kounchev (Contact Author)
Bulgarian Academy of Sciences and IZKS-University of Bonn ( email )
Acad. G. Bonchev str. 8
Sofia, 1113
Bulgaria
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