Callable bond
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Early option exercise: Never say never Open
A classic result by Merton (1973) is that, except just before expiration or dividend payments, one should never exercise a call option and never convert a convertible bond. We show theoretically that this result is overturned when investor…
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Credit risk, debt overhang, and the life cycle of callable bonds Open
We show that callable bonds have both higher yields and lower market prices than matched non-callable bonds of the same issuer-time, reflecting the value of call features to issuers and investors. This “value of callability” as well as the…
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Deep Learning-Based BSDE Solver for Libor Market Model with Application to Bermudan Swaption Pricing and Hedging Open
The Libor market model is a mainstay term structure model of interest rates for derivatives pricing, especially for Bermudan swaptions, and other exotic Libor callable derivatives. For numerical implementation the pricing of derivatives wi…
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Don't Waste a Free Lunch: Managing the Advance Refunding Option Open
A callable municipal bond issue funding a new project is usually eligible for “advance refunding”—that is, refunding between the issue date and the call date. Such refunding is accomplished by issuing new bonds, and investing the proceeds …
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Deep optimal stopping Open
In this paper we develop a deep learning method for optimal stopping problems which directly learns the optimal stopping rule from Monte Carlo samples. As such, it is broadly applicable in situations where the underlying randomness can eff…
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Credit Risk and the Life Cycle of Callable Bonds: Implications for Corporate Financing and Investing Open
Call provisions allow bond issuers to redeem their bonds early. While commonly observed, existing research offers limited insight into the purpose of this contract feature. We show that bond callability is designed to mitigate agency probl…
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Interest-Free Treasury Bonds (IFTB) Open
Purpose: Although the treasury bill is the most important monetary instrument in central banking, its application in different phases of the business cycle, especially in a liquidity trap, is not working well. To remove this obstacle “Inte…
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Why Do Firms Issue Callable Bonds? Open
Corporations in the US have significantly increased their usage of callable bonds in the past 10-15 years. Whereas callable debt was issued in the past for interest rate hedging motives, the vast majority of callable bonds issued today hav…
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Fast and accurate exercise policies for Bermudan swaptions in the LIBOR market model Open
This paper describes an American Monte Carlo approach for obtaining fast and accurate exercise policies for pricing of callable LIBOR Exotics (e.g., Bermudan swaptions) in the LIBOR market model using the Stochastic Grid Bundling Method (S…
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A Modified Callable Mechanism for Seat Inventory Control of Airlines Based on Buy-Up Behavior Open
This paper introduces the buy-up behavior to the callable mechanism of seat inventory control, creating a modified callable mechanism, and studies the airline revenue under the modified mechanism. Specifically, the willingness to pay of co…
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IPO Pricing and Dealers’ Interaction: A Stochastic Frontier Approach Open
This study investigates the impact of ongoing relationships between underwriters and institutional investors on Initial Public Offerings (IPO) pricing. Differently from previous studies that are focused on allocations of underpriced shares…
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VALUATION OF EMBEDDED OPTIONS IN NON-MARKETABLE CALLABLE BONDS: A NEW NUMERICAL APPROACH Open
The issue of how to price options embedded in callable bonds has attracted a lot of interest over the years. The usual bond valuation methods rely on yield curves, risk premium, and other parameters to estimate interest rates used in disco…
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What is Wrong with Convertible Bonds that Provide Call Options to Third Parties? Open
Callable convertible bonds (CBs) that provide call options to third parties but are not used in major economies have been issued since issuances of detachable privately placed bonds with warrants (BWs) were banned in 2013. The largest shar…
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Solution Representations of Solving Problems for the Black-Scholes equations and Application to the Pricing Options on Bond with Credit Risk Open
In this paper is investigated the pricing problem of options on bonds with credit risk based on analysis on two kinds of solving problems for the Black-Scholes equations. First, a solution representation of the Black-Scholes equation with …
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Do Callable Convertibles Support The Investment Process Of A Company? An Analysis Of The World Market Of Hybrid Debt Open
Using a sample of 1,705 convertible bonds issued by manufacturing and service companies from the United States (1,138 issues); Europe (270); and Asia (297) between 2004 and 2014 this paper investigates the role of callable convertibles in …
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Pricing of the Quanto Game Option with Asian Feature Open
The game option, which is also known as Israel option, is a new type of American option to give the option writer the right to cancel the contract before the maturity. This article studies the pricing behaviors of the quanto game option wi…
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Deep Learning-Based Least Square Forward-Backward Stochastic Differential Equation Solver for High-Dimensional Derivative Pricing Open
We propose a new forward-backward stochastic differential equation solver for high-dimensional derivatives pricing problems by combining deep learning solver with least square regression technique widely used in the least square Monte Carl…
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Deep Learning-Based BSDE Solver for Libor Market Model with Application\n to Bermudan Swaption Pricing and Hedging Open
The Libor market model is a mainstay term structure model of interest rates\nfor derivatives pricing, especially for Bermudan swaptions, and other exotic\nLibor callable derivatives. For numerical implementation the pricing of\nderivatives…
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A semi-static replication approach to efficient hedging and pricing of callable IR derivatives Open
We present a semi-static hedging algorithm for callable interest rate derivatives under an affine, multi-factor term-structure model. With a traditional dynamic hedge, the replication portfolio needs to be updated continuously through time…
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Analysis of Floating Rate Bonds and the Firm Characteristics Open
We examine the security and firm characteristics of a sample of 2,027 non-convertible investment grade floating rate securities (bonds) issued by the US based firms between 1980 and 2018. These bonds pay a coupon based on short term refere…
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Callable convertible bonds under liquidity constraints and hybrid priorities Open
This paper investigates the callable convertible bond problem in the presence of a liquidity constraint modelled by Poisson signals. We assume that neither the bondholder nor the firm has absolute priority when they stop the game simultane…
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The Recalibration Conundrum: Hedging Valuation Adjustment for Callable Claims Open
The dynamic hedging theory only makes sense in the setup of one given model, whereas the practice of dynamic hedging is just the opposite, with models fleeing after the data through daily recalibration. This is quite of a quantitative fina…
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Callable Convertible Bonds Under Liquidity Constraints and Hybrid Priorities Open
This paper investigates the callable convertible bond problem in the presence of a liquidity constraint modeled by Poisson signals. We assume that neither the bondholder nor the firm has absolute priority when they stop the game simultaneo…
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Risk Structure of Banks in Spain: Do BHCs Have Greater Cost of Debt? Open
Holding companies legally separate the assets and owners of a company creating a layer of liability protection. Theoretically, this feature lowers the risk attributable to holding companies, enabling them to offer lower-cost debts compared…
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DOJŚCIE EMISJI PAPIERÓW WARTOŚCIOWYCH DO SKUTKU NA PRZYKŁADZIE EMISJI OBLIGACJI Open
THE MOMENT OF CREATION OF SECURITIES ON THE EXAMPLE OF THE BONDS Summary Bonds are a type of securities that are used to raise funds for the financial needs of enterprises. These funds are considered as a money capital coming from external…
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Modelling the Libor transition: Implementing and extending the generalized forward market model Open
Interbank-offered-rates play a critical role in the hedging processes of banks, hedge funds or institutional investors. However, the financial stability board recommended to replace these rates by alternative risk-free-rates at the end of …
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Efficient estimation of nucleotide diversity and divergence using callable loci (and more) Open
The increasing scale of population genomic datasets presents computational challenges in estimating summary statistics such as nucleotide diversity (π) and divergence (dxy). Accurate estimates of diversity require knowledge of missing data…
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Interest Rate Sensitivity of Callable Bonds and Higher-Order Approximations Open
Certain fixed-income securities, such as callable bonds and mortgage-backed securities subject to prepayment, typically exhibit negative convexity at low yields and cannot be adequately immunized through duration and convexity-matching alo…
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A REFINED LAPLACE-CARSON TRANSFORM APPROACH TO VALUING CONVERTIBLE BONDS Open
This paper deals with a refinement of the Laplace-Carson transform (LCT) approach to option pricing, with a special emphasis on valuing defaultable and non-callable convertible bonds (CBs), but not limited to it. What we are actually aimin…
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Valuation of callable convertible bonds using binomial trees model with default risk, convertible hedging and arbitrage, duration and convexity. Open
In this thesis, I develop a valuation model to price convertible bonds with call provision. Convertible bonds are hybrid instruments that possess both equity and debt characteristics. The purpose of this study is to build a pricing model f…