Valuing Convertible Bond by Hull and White Interest Rate Model
碩士 === 國立高雄第一科技大學 === 金融營運系碩士班 === 88 === This thesis used lattice approach to develop a model to value convertible bonds. The main difference between this thesis and the previous studies focused on allowing for the uncertainty in interest rate. In this thesis, we used Hull and White model as our in...
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| Format: | Others |
| Language: | zh-TW |
| Published: |
2000
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| Online Access: | http://ndltd.ncl.edu.tw/handle/56279783990493433646 |
| Summary: | 碩士 === 國立高雄第一科技大學 === 金融營運系碩士班 === 88 === This thesis used lattice approach to develop a model to value convertible bonds. The main difference between this thesis and the previous studies focused on allowing for the uncertainty in interest rate. In this thesis, we used Hull and White model as our interest rate model and considered the correlation between the stock return and interest rate. Hull and White model is one of the no arbitrage models that provides an exact fit to the initial term structure. With assumptions that stock price follows Geometric Brownian Motion and risk-free interest rate follows Hull and White model, we built a hexanomial tree and took every inclusion of clauses into consideration to value convertible bond.
This thesis used B-spline to estimate the term structure of interest rates on Taiwan and used AR(1) to evaluate the parameters of the interest rate model. The results showed that when we compared the performance of the model price with that of the market price, the model price was overestimated and was higher than the market price. The probable reasons are listed below：1.The significant error was probably caused by estimated parameters. 2.Some clauses such as put、reset options were not considered in detail. 3.Because of the restriction of conversion, the liquidity of the convertible bond market in Taiwan was not so good that the market price couldn''t reflect their true value.
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