[Rao, Yulei; Huang, Jianbo] Cent S Univ, Sch Business, Changsha 410083, Hunan, Peoples R China.

[Liu, Jian] Changsha Univ Sci & Technol, Sch Econ & Management, Changsha 410004, Hunan, Peoples R China.

[Rao, Yulei] C

Cent S Univ, Sch Business, Changsha 410083, Hunan, Peoples R China.

The convertible bonds usually have multiple additional provisions that make their pricing problem more difficult than straight bonds and options. This paper uses the binary tree method to model the finance market. As the underlying stock prices and the interest rates are important to the convertible bonds;we describe their dynamic processes by different binary tree. Moreover;we consider the influence of the credit risks on the convertible bonds that is described by the default rate and the recovery rate;then the two-factor binary tree model involving the credit risk is established. On the basis of the theoretical analysis;we make numerical simulation and get the pricing results when the stock prices are CRR model and the interest rates follow the constant volatility and the time-varying volatility;respectively. This model can be extended to other financial derivative instruments. Published: 2013 First available in Project Euclid: 26 February 2014 zbMATH: 1273.91437 MathSciNet: MR3045060 Digital Object Identifier: 10.1155/2013/270467

经济与管理学院