Adapted downhill simplex method for pricing convertible bonds
The paper is devoted to modeling optimal exercise strategies of the behavior of investors and issuers working with convertible bonds. This implies solution of the problems of stock price modeling, payoff computation and minimax optimization. Stock prices (underlying asset) were modeled under the as...
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| Date: | 2007 |
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| Main Authors: | , , |
| Format: | Article |
| Language: | English |
| Published: |
Інститут математики НАН України
2007
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| Online Access: | http://dspace.nbuv.gov.ua/handle/123456789/4517 |
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| Journal Title: | Digital Library of Periodicals of National Academy of Sciences of Ukraine |
| Cite this: | Adapted downhill simplex method for pricing convertible bonds / K. Mishchenko, V. Mishchenko, A. Malyarenko // Theory of Stochastic Processes. — 2007. — Т. 13 (29), № 4. — С. 130–147. — Бібліогр.: 5 назв.— англ. |
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Digital Library of Periodicals of National Academy of Sciences of Ukraine| Summary: | The paper is devoted to modeling optimal exercise strategies of the behavior of investors and issuers working with convertible bonds. This implies solution of the problems of stock price modeling, payoff computation and minimax optimization.
Stock prices (underlying asset) were modeled under the assumption of the geometric Brownian motion of their values. The Monte Carlo method was used for calculating the real payoff which is the objective function. The minimax optimization problem was solved using the derivative-free Downhill Simplex method.
The performed numerical experiments allowed to formulate recommendations for the choice of appropriate size of the initial simplex in the Downhill Simplex Method, the number of generated trajectories of underlying asset, the size of the problem and initial trajectories of the behavior of investors and issuers. |
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