Optimal Policies of Call with Notice Period Requirement for Callable American Warrants and Convertible Bonds

44 Pages Posted: 2 Aug 2004

See all articles by Min Dai

Min Dai

National University of Singapore (NUS) - Department of Mathematics

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics

Date Written: March 12, 2006

Abstract

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

Dai, Min and Kwok, Yue Kuen, Optimal Policies of Call with Notice Period Requirement for Callable American Warrants and Convertible Bonds (March 12, 2006). Available at SSRN: https://ssrn.com/abstract=571283 or http://dx.doi.org/10.2139/ssrn.571283

Min Dai (Contact Author)

National University of Singapore (NUS) - Department of Mathematics ( email )

Singapore

Yue Kuen Kwok

Hong Kong University of Science & Technology - Department of Mathematics ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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