Convertible Bonds as Dynkin Games: A Monte Carlo Approach

Rene Carmona (Princeton)

Convertible bonds are hybrid securities with a fixed income component and an equity component. After a short literature review and a thorough discussion of the numerical methods currently in use, I will recast these instruments in the framework of Dynkin games, and describe a valuation method based on Monte Carlo simulations and statistical regressions.
As the emphasis of the talk is on numerical valuation, the models will be presented and discussed in discrete time. Implementation issues also will be addressed.