Critical Analysis of the Binomial-Tree Approach to Convertible Bonds in the Framework of Tsiveriotis-Fernandes Model
Bulgarian Academy of Sciences, Institute of Mathematics and Informatics; FinAnalytica
Bulgarian Academy of Sciences and IZKS-University of Bonn
October 24, 2011
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
Date posted: October 22, 2011 ; Last revised: October 9, 2012
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