A New Nonparametric Approach to Price Convertible Bond Based on Random Interest Rate

Xisheng Yu


This paper proposes an idea of combining the following two nonparametric approaches for two-factor convertible bond valuation. One is the stimulation of random rate, the interest rate term structure based on polynomial spine function was attained by only using historical data; Another is Canonical risk-neutral probability, which was attained by observed stock returns, so that the convertible bonds can be valuated by using equivalent martingale measure.

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DOI: https://doi.org/10.5539/ijef.v1n2p118

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International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)  Email: ijef@ccsenet.org

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