An Asset Based Model of Defaultable Convertible Bonds with Endogenised Recovery

  title={An Asset Based Model of Defaultable Convertible Bonds with Endogenised Recovery},
  author={Ana I P Berm{\'u}dez and Nick Webber},
We describe a two factor valuation model for convertible bonds when the firm may default. We endogenize both default and the recovery value of a defaulted bond. A sophisticated numerical framework enables us to specify numerically and financially consistent boundary conditions and inequality constraints. We investigate the affect of changing the default, recovery and loss specification. The affect of introducing a stochastic interest rate is quantified, and asset and interest rate delta and… CONTINUE READING
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