Credit Risk Evaluation of Taiwan Convertible Bond-LSM Method
碩士 === 國立高雄第一科技大學 === 金融營運所 === 97 === Convertible bond is a hybrid security which combines stock and bond. Issuing firms usually issue convertible bond that includes many provisions such as call option, put option and reset, in order to satisfy with what the investors want. All of the provisions ha...
| Main Authors: | , |
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| Format: | Others |
| Language: | zh-TW |
| Published: |
2009
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| Online Access: | http://ndltd.ncl.edu.tw/handle/27301457697608662644 |
| Summary: | 碩士 === 國立高雄第一科技大學 === 金融營運所 === 97 === Convertible bond is a hybrid security which combines stock and bond. Issuing firms usually issue convertible bond that includes many provisions such as call option, put option and reset, in order to satisfy with what the investors want. All of the provisions have the early exercise characteristic and they can result path-dependent from resetting provision, so I can’t use the past pricing model to value convertible bond.
In this paper, it adopts Longstaff and Schwartz (2001) generate Least-Square Monte Carlo method which estimates optimal early exercise time of each simulation path and solves the problem of path-dependent . I use the Numerical Method to value the model price of forty convertible bonds that consider stock price variable and assume the credit risk of issuing firm doesn’t exit. Then I analyze the relation by comparing the credit risk and the price differential between model price and issuing price of convertible bond. I measure the quality of credit referring to TCRI which provided by Taiwan Economic Journal (TEJ). The empirical results show that the greater rank of TCRI generates the higher price differential of convertible bond. It implied that the positive correlation between TCRI and the price differential of convertible bond. Finally, I calculate the credit risk premium of each empirical convertible bond assuming model price equals issuing price.
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