Study the effect of call able convertible bond on investment timing

Subject Areas : Journal of Investment Knowledge

Morteza Rahmani ¹ , Narges Hassani ²

1 - دانشیار دانشگاه علم و فرهنگ و پژوهشکده توسعه تکنولوژی جهاد دانشگاهی
2 - دانش آموخته کارشناس ارشد ریاضی مالی دانشگاه علم و فرهنگ

Received: 2015-10-28 Accepted : 2016-01-19 Published : 2016-06-21

Keywords: convertible bonds, stopping game, real option,

Abstract :

Convertible bonds are hybrid securities with both characteristics of straight bond and equities. At each subsequent time, the bondholder must decide whether to hold the bond or to convert it to stock. Also the bond can be called by the issuing firm, if included in the contract. Security price significantly affect by interaction between bondholders and shareholders. In this study we investigate the interaction between bondholder and shareholder by using of stopping game and we study the effect of convertible bond on investment timing. We get optimal investment threshold, bankruptcy, convert and call. Then we consider the effect of volatility, coupon payment and strike price on thresholds.

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