Table 5 Model prices versus market prices

From: A simple and precise method for pricing convertible bond with credit risk

  Case 1 (a 7-year convertible) Case 2 (a 20-year convertible)
Type of volatility ATM implied Black–Scholes volatility Annualized historical volatility
Value of volatility 31.87% 18.07%
Model price 134.32 171.58
Market observed price 134.88 169.77
Difference −0.42% 1.07%
  1. Note: This table shows the differences between the model prices and the market prices of the convertible bonds under different volatility assumptions, where Difference=(Model price)/(Market observed price)–1. The convertible bonds are defined in Table 1.