Journal of Systems Science and Complexity

, Volume 26, Issue 6, pp 968–977 | Cite as

Pricing convertible bonds and change of probability measure

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Abstract

The changes of numeraire can be used as a very powerful tool in pricing contingent claims in the context of a complete market. By using the method of numeraire changes to evaluate convertible bonds when the value of firm, and those of zero-coupon bonds follow general adapted stochastic processes in this paper, using It_o theorem and Gisanov theorem. A closed-form solution is derived under the stochastic volatility by using fast Fourier transforms.

Key words

Convertible bonds European option numeraire changes stochastic volatility model 
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Copyright information

© Institute of Systems Science, Academy of Mathematics and Systems Science, CAS and Springer-Verlag Berlin Heidelberg 2013

Authors and Affiliations

  1. 1.Department of Statistics and FinanceUniversity of Science and Technology of ChinaHefeiChina
  2. 2.School of MathematicsHefei University of TechnologyHefeiChina

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