Simulation for Callable Convertible Discount Bonds with Monte Carlo Method

Abstract

Pricing of Callable Convertible Discount Bonds is based on non-redemption constraints under a discrete framework. The Monte Carlo method is used to conduct a large number of random simulations on the change path of the underlying stock price on the future time T. And then average it and discount it at a risk-free rate. Finally, it can get the price of the callable convertible discount bonds. The value of convertible bonds under different stock prices is analyzed in the form of charts. At the same time, we also consider the effect of different parameter variables on the value of convertible bond. Therefore, we can have a comprehensive understanding of the pricing of the callable convertible discount bonds.