An 'Economical' Pricing Model for Hybrid Products

Posted: 11 Feb 2015

See all articles by Rosa Cocozza

Rosa Cocozza

University of Naples Federico II - Faculty of Economics

Antonio De Simone

University of Naples Federico II - Faculty of Economics

Date Written: February 10, 2013

Abstract

In this chapter, we propose, after a brief review of the convertible bond pricing theory, an innovative numerical procedure that can efficiently be adopted with the aim of pricing convertibles. Such a procedure accounts for two sources of risk: The stock price and the spot interest rate. More precisely, we assume that the stock price dynamics is described by the Cox–Ross–Rubinstein (Cox et al., 1979) binomial model under a stochastic risk-free rate, whose dynamics evolves over time according to the Black–Derman–Toy (Black et al., 1990) one-factor model.

Suggested Citation

Cocozza, Rosa and De Simone, Antonio, An 'Economical' Pricing Model for Hybrid Products (February 10, 2013). Available at SSRN: https://ssrn.com/abstract=2562783

Rosa Cocozza (Contact Author)

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia Monte S. Angelo
Napoli, 80126
Italy
+39/81675083 (Phone)

HOME PAGE: http://www.docenti.unina.it/rosa.cocozza

Antonio De Simone

University of Naples Federico II - Faculty of Economics ( email )

Via Cintia, Monte S. Angelo
Napoli, 80126
Italy

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