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Convertible Bonds: a Qualitative and Numerical Analysis
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.).
KTH, School of Engineering Sciences (SCI), Mathematics (Dept.).
2014 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

A convertible bond is a nancial instrument which has both an equity part

and a xed-income part. The pricing of nancial securities has for quite

obvious reasons become extensively studied in the past decades. In this

paper we study the Black-Scholes model, based on the equity value, where

the equity is modelled by geometric brownian motion. We introduce the

pricing of nancial securities in general by Partial Differential Equation

(PDE) approach. We continue by studying the convertible bond with a call

feature, which is a derivative of the stock price. Our model leads to a free

boundary problem together with a parabolic partial differential equation.

We also give some analytical results on uniqueness and monotonicity of

the solutions. This paper ends with a numerical study of the solutions for

different bond features.

Place, publisher, year, edition, pages
2014. , 41 p.
National Category
Engineering and Technology
URN: urn:nbn:se:kth:diva-147346OAI: diva2:729641
Available from: 2014-06-26 Created: 2014-06-26 Last updated: 2014-06-26Bibliographically approved

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