Optimal Policies of Call with Notice Period Requirement for Callable American Warrants and Convertible Bonds
44 Pages Posted: 2 Aug 2004
Date Written: March 12, 2006
When an American warrant or convertible bond is called by its issuer, the holder is usually given a notice period to decide either selling the derivative back to the issuer at the call price or exercising the conversion right. Several earlier papers have shown that such notice period requirement may substantially affect the optimal call policy adopted by the issuer. In this paper, we perform theoretical studies on the impact of the notice period requirement on issuer's optimal call policy for American warrants and convertible bonds. We also examine how the optimal call policy of the issuer interacts with holder's optimal conversion policy.
Keywords: American warrant, convertible bond, notice period requirement, callable feature
JEL Classification: G13
Suggested Citation: Suggested Citation