Pricing of a Perpetual Convertible Bond with Credit Rating Migration Based on Structure Framework

doi:10.11908/j.issn.0253-374x.19312

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Pricing of a Perpetual Convertible Bond with Credit Rating Migration Based on Structure Framework
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                        10.11908/j.issn.0253-374x.19312
                    
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                        LIANG Jin1LIANG Jin
School of Mathematical Sciences, Tongji University, Shanghai 200092, China
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BAO Junli1BAO Junli
School of Mathematical Sciences, Tongji University, Shanghai 200092, China
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Affiliation:School of Mathematical Sciences, Tongji University, Shanghai 200092, China
Clc Number:TP273
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Abstract:

In this paper, the pricing of a two-asset corporate bond with consideration of credit rating migration risks is studied. By using Merton’s structure approach to pricing corporate bond with default risk and giving two kinds of conditions at rating migration, two models for pricing the corporate bond are derived, which can be turned to two-dimensional parabolic equation systems coupled at the rating migration boundary. Besides, the existence and uniqueness of the solution for the model are verified. Moreover, an analytical solution and a numerical solution for the two models are obtained respectively. Furthermore, the effect of credit rating migration on pricing of corporate bond is analyzed and the difference of the two models is compared.

Key words:bond pricing;structure model;credit rating migration;two-asset

Reference

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LIANG Jin, BAO Junli. Pricing of a Perpetual Convertible Bond with Credit Rating Migration Based on Structure Framework[J].同济大学学报(自然科学版),2020,48(4):620~628

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Received:July 30,2019
Revised:February 20,2020
Adopted:February 10,2020
Online: April 24,2020
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