Steven Shreve, Carnegie Mellon University

No-arbitrage Pricing and Convertible Bonds
Date
Nov 4, 2003, 4:30 pm5:30 pm
Location
E219 - Engineering Quadrangle
Event Description

The theory of pricing derivatives securities by no-arbitrage considerations will be reviewed. This provides the foundation for the celebrated Black-Scholes option pricing formula. It will then be applied to the problem of pricing convertible bonds. In addition to using the no-arbitrage theory, this problem has a game-theoretic aspect. The issuing firm can call (repurchase) the bond and the bondholder may convert the bond for shares of stock. Each of these agents tries to optimally time her action. The resulting game has a value, which determines the price of the bond.

Event Category
ORFE Department Colloquia