A convertible-bond-pricing method based on bond prices on markets

This thesis is devoted to evaluating two-factor convertible bonds. Different zero- coupon bond curves are inputted when evaluating convertible bonds issued by com- panies with different credit ratings. Thus the effect of the company’s credit on the price of the convertible bond is easily and accurately included during the computa- tion. In the model for the interest rate, the parameters in the variance are determined from the market data by statistics and the market price of risk is determined by a zero-coupon bond curve through solving an inverse problem. When we price the con- vertible bond, a free-boundary problem is solved. A Singularity-Separating Method (SSM) is proposed in order to solve this problem efficiently. Taking the market data as input, we can easily, quickly, and reasonably obtain the price of a convertible bond