Transcription of Convertible Bond Pricing - SolvencyAnalytics
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Convertible Bond Pricing - SolvencyAnalytics
Convertible Bond PricingWorking Paper Series2015-10 (01) 2015 Convertible Bond PricingBal azs Mez 2015 Convertible bond investments may have a special role under Solvency II and the SwissSolvency Test as they are favoured over equities due to their convex payoff profile. Es-pecially under Solvency II, replacing equities by an optimized Convertible bond portfoliocan reduce the solvency capital requirement (SCR) significantly while keeping risk/return char-acteristics virtually unchanged. Therefore, we believe that for small and mid size insurancecompanies where constraints on investment volume are less relevant, Solvency II optimizedconvertible bond strategies will be an attractive alternative to formulating such investment strategies Convertible bond Pricing functions have to becorrectly implemented and tested.
convertible bonds and shows the implementation of three different modifications of a binomial tree-based pricing model using real world CB features. There are several questions that need to be addressed when specifying a convertible bond pric-ing model. First, most often observed convertible bond features need to be categorized as they
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