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

25 Pages Posted: 22 Oct 2011 Last revised: 9 Oct 2012

Krasimir Milanov

CloudRisk Ltd.

Ognyan Kounchev

Bulgarian Academy of Sciences; University of Bonn - IZKS

Date Written: 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.

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

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: https://ssrn.com/abstract=1946952 or http://dx.doi.org/10.2139/ssrn.1946952

Krasimir Milanov

CloudRisk Ltd. ( email )

Sofia
Bulgaria

Ognyan Kounchev (Contact Author)

Bulgarian Academy of Sciences ( email )

Acad. G. Bonchev str. 8
Sofia, 1113
Bulgaria

University of Bonn - IZKS ( email )

Regina-Pacis-Weg 3
Postfach 2220
Bonn, D-53012
Germany

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