Decomposing and valuing callable convertible bonds: a new method based on exotic options

In the framework of Black-Scholes-Merton option pricing models, by employing exotic options instead of plain options or warrants, this paper presents an equivalent decomposition method for usual Callable Convertible Bonds (CCB). Furthermore, the analytic valuation formulae for CCB are worked out by using the analytic formulae for those simpler securities decomposed from CCB. Moreover, this method is validated by comparing with Monte Carlo simulation. Besides, the effects of call clauses, coupon clauses and soft call condition clauses are analyzed respectively. These give lots of new insights into the valuation and analysis of CCB and much help to hedge their risks.Callable convertible bonds; Equivalent decomposition; Up-and-out calls; American binary calls; Derivative pricing

Do banks influence stock crash risk? Evidence from banking deregulation

An extensive literature shows that managers’ withholding of bad news, an agency problem in corporate governance, plausibly causes stock price crashes. This literature, however, has not examined whether and how lending banks influence borrowing firms’ crash risk, despite banks’ advantageous role in corporate governance via their monitoring and funding functions. We fill this void in this study. To mitigate endogeneity, we exploit the staggered reforms in U.S. state-level banking markets that gradually lift barriers for interstate branching. These deregulation events, which are exogenous to firms, represent historically important shocks to bank competition, and bank competition can fundamentally alter bank monitoring and funding behaviors. We find robust evidence that bank competition reduces firm crash risk, and the effect is stronger in scenarios in which bank monitoring and funding are likely to exert greater influences. Bank competition also mitigates abrupt divulgence of adverse information, suppresses earnings management, and improves reporting quality, which helps explain the decline in crash risk

High concentration Brownian coagulation in jet flow using two enhancement formulations

Ultra-fine particle coagulation by Brownian motion at high concentration in planar jet flow is simulated. A Taylor-Series Expansion Method of Moments is employed to solve the particle general dynamic equation. The volume fraction gets high value, very closes to that at the nozzle exit. As the vortex pairing develops, the high volume fraction region rolls out and mixes with the low value region. The enhancement factor given by Trzeciak et al. will be less than one at some specific outer positions, which seems to be less accurate than the one given by Heine et al

Decomposing and valuing callable convertible bonds: a new method based on exotic options

In the framework of Black-Scholes-Merton option pricing models, by employing exotic options instead of plain options or warrants, this paper presents an equivalent decomposition method for usual Callable Convertible Bonds (CCB). Furthermore, the analytic valuation formulae for CCB are worked out by using the analytic formulae for those simpler securities decomposed from CCB. Moreover, this method is validated by comparing with Monte Carlo simulation. Besides, the effects of call clauses, coupon clauses and soft call condition clauses are analyzed respectively. These give lots of new insights into the valuation and analysis of CCB and much help to hedge their risks

Decomposing and valuing callable convertible bonds: a new method based on exotic options

In the framework of Black-Scholes-Merton option pricing models, by employing exotic options instead of plain options or warrants, this paper presents an equivalent decomposition method for usual Callable Convertible Bonds (CCB). Furthermore, the analytic valuation formulae for CCB are worked out by using the analytic formulae for those simpler securities decomposed from CCB. Moreover, this method is validated by comparing with Monte Carlo simulation. Besides, the effects of call clauses, coupon clauses and soft call condition clauses are analyzed respectively. These give lots of new insights into the valuation and analysis of CCB and much help to hedge their risks