Asia-Pacific Financial Markets

, Volume 12, Issue 4, pp 353–373

Optimal policies of call with notice period requirement

Original Paper

Abstract

When an American warrant or a convertible bond is called by its issuer, the holder is usually given a notice period to decide whether to sell the derivative back to the issuer at the call price or to exercise the conversion right. Several earlier papers have shown that such notice period requirement may substantially affect the optimal call policy adopted by the issuer. In this paper, we perform theoretical studies on the impact of the notice period requirement on issuer’s optimal call policy for American warrants and convertible bonds. We also examine how the optimal call policy of the issuer interacts with holder’s optimal conversion policy.

Keywords

American warrants Convertible bonds Call policies Conversion policies Notice period requirement 

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Copyright information

© Springer Science+Business Media, LLC 2006

Authors and Affiliations

  1. 1.Department of MathematicsNational University of SingaporeSingaporeSingapore
  2. 2.Department of MathematicsHong Kong University of Science and TechnologyHong KongChina

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