Pricing Convertible Bonds

SciComp offers three solutions for pricing convertible bonds, SciFinance®, Custom Fit Pricing Models and the Standard Convertible Bond Pricing Model.

SciFinance

SciFinance is an automated coding technology for rapidly developing derivatives pricing and risk models. Simply select from one of hundreds of model specifications and modify as appropriate to capture the unique features of the convertible bond or to implement a preferred pricing approach. Convertible bond pricing model specifications are comprised of arbitrary partial differential equations (PDEs), numerical algorithms and keywords, and may include the calling of external functions. SciFinance does the rest by automating the programming task via the SciPDE module to produce fully documented C/C++/CUDA pricing model source code or Excel spreadsheets and add-ins.

Custom Fit Pricing Models

SciComp Custom Fit Pricing Models meet the needs of users looking for a customized convertible bond pricing model that has been tailored to their particular modeling needs and requirements. Custom Fit Pricing Models are state-of-the-art convertible bond pricing and risk models comparable to those found on the desks of traders and risk managers within Tier-1 financial organizations. Like SciFinance, Custom Fit Pricing Models support the modeling of any convertible bond and are available as a C/C++ pricing executable, C/C++ pricing model source code or a ready-to-use Excel spreadsheet and add-in.

Standard Convertible Bond Pricing Model

The Standard Convertible Bond Pricing Model is an off-the-shelf convertible bond pricing model that supports the pricing and risk sensitivity of convertible bonds with many standard features. Like all SciComp solutions the Standard Convertible Bond Pricing Model can be enhanced/modified to meet any particular modeling needs you may have and is available as a C/C++ pricing executable, C/C++ pricing model source code or a ready-to-use Excel spreadsheet and add-in.

Convertible bond features available with SciFinance
and Custom Fit Pricing Models

Pricing models for convertible bonds

SciComp solutions supports the modeling of any convertible bond that can be expressed as a series of PDEs, so no list can be complete (partial list below).

• Local volatility models
• Stochastic volatility models
• Stochastic volatility with asset jumps (SVJ)
• Stochastic volatility with asset and volatility jumps (SVJJ)
• Variance gamma, CGMY, CGMYSA, etc
• Cheyette model
• Clewlow & Stickland model
• Arbitrary user defined model
  

Pricing model calibration

SciCalibrator is an automated coding technology for translating a pricing model calibration specification into the corresponding C/C++ source code for the calibration routine or a ready-to-use Excel spreadsheet and add-in. SciCalibrator comes with over a dozen analytical pricers for valuing the underlying calibration instruments or, if you prefer, you may use your own pricer. If no analytical pricer is available, you can generate a SciFinance PDE pricing model for use in the calibration routine.

Convertible bond calibration routines include:

• Local volatility
• CEV (including time dependence)
• Heston SV+ jumps
• CEV/SV Markovian Conditioning
• Kou double exponential jump model
• VG and CGMY models
• VGSA and CMGYSA (VG and CMGY + stochastic time change)
• User defined calibration routine

Convertible bond features may include:

• Term structure of volatility, rates, credit risk, conversion rates, put and call prices
• Contingent, resetting and zero coupon conversion
• Discrete call/put, protected calls, soft calls (including Asian and Parisian features)
• Stochastic conversion rate
• Best of asset conversions
• Arbitrary dividend sizes and schedules
• Embedded optionality, e.g., call notice period
• Cross currency features
• Transaction costs
• Credit spreads, recovery rates, arbitrary functions of time and stock prices
• Sensitivities to any model parameter