Critical Analysis of the Binomial-Tree approach to Convertible Bonds in the framework of Tsiveriotis-Fernandes model

preprint2011arXivOpen access

Abstract

In the present paper we show that the Binomial-tree approach for pricing, hedging, and risk assessment of Convertible bonds in the framework of the Tsiveriotis-Fernandes model has serious drawbacks. Key words: Convertible bonds, Binomial tree, Tsiveriotis-Fernandes model, Convertible bond pricing, Convertible bond Greeks, Convertible Arbitrage, Delta-hedging of Convertible bonds, Risk Assessment of Convertible bonds.

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