A Conditional Markov Model for Pricing Contingent Convertibles

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Title: A Conditional Markov Model for Pricing Contingent Convertibles
Author: Puranen, Ilari
Contributor: University of Helsinki, Faculty of Science, Department of Mathematics and Statistics
Publisher: Helsingin yliopisto
Date: 2018
Language: eng
URI: http://urn.fi/URN:NBN:fi:hulib-201801101008
Thesis level: master's thesis
Discipline: Mathematics
Abstract: We introduce a new model for contingent convertibles. The write-down, or equity conversion, and default of the contingent convertible are modeled as states of conditional Markov process. Valuation formulae for different financial contracts, like CDS and different types of contingent convertibles, are derived. The Model can be thought of as an extension to reduced form models with an additional state. For practical applications, this model could be used for new type of contingent convertible derivatives in a similar fashion than reduced form models are used for credit derivatives.

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