Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy
This study investigates the valuation of Euro-convertible bonds (ECBs) using a novel Markov-modulated cojump-diffusion (MMCJD) model, which effectively captures the dynamics of stochastic volatility and simultaneous jumps (cojumps) in both the underlying stock prices and foreign exchange (FX) rates....
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| Language: | English |
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MDPI AG
2025-06-01
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| Series: | Mathematics |
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| Online Access: | https://www.mdpi.com/2227-7390/13/13/2075 |
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| author | Yu-Min Lian Jun-Home Chen Szu-Lang Liao |
| author_facet | Yu-Min Lian Jun-Home Chen Szu-Lang Liao |
| author_sort | Yu-Min Lian |
| collection | DOAJ |
| description | This study investigates the valuation of Euro-convertible bonds (ECBs) using a novel Markov-modulated cojump-diffusion (MMCJD) model, which effectively captures the dynamics of stochastic volatility and simultaneous jumps (cojumps) in both the underlying stock prices and foreign exchange (FX) rates. Furthermore, we introduce a Markov-modulated Cox–Ingersoll–Ross (MMCIR) framework to accurately model domestic and foreign instantaneous interest rates within a regime-switching environment. To manage computational complexity, the least-squares Monte Carlo (LSMC) approach is employed for estimating ECB values. Numerical analyses demonstrate that explicitly incorporating stochastic volatilities and cojumps significantly enhances the realism of ECB pricing, underscoring the novelty and contribution of our integrated modeling approach. |
| format | Article |
| id | doaj-art-b7d49dd71f7b4bd7aee0b592ef5698c0 |
| institution | Kabale University |
| issn | 2227-7390 |
| language | English |
| publishDate | 2025-06-01 |
| publisher | MDPI AG |
| record_format | Article |
| series | Mathematics |
| spelling | doaj-art-b7d49dd71f7b4bd7aee0b592ef5698c02025-08-20T03:28:33ZengMDPI AGMathematics2227-73902025-06-011313207510.3390/math13132075Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross EconomyYu-Min Lian0Jun-Home Chen1Szu-Lang Liao2Department of Business Administration, Fu Jen Catholic University, No. 510, Zhongzheng Rd., Xinzhuang Dist., New Taipei City 242062, TaiwanDepartment of Business Administration, National Chin-Yi University of Technology, No. 57, Sec. 2, Zhongshan Rd., Taiping Dist., Taichung 411030, TaiwanDepartment of Money and Banking, National Chengchi University, No. 64, Sec. 2, Zhinan Rd., Wenshan Dist., Taipei City 116302, TaiwanThis study investigates the valuation of Euro-convertible bonds (ECBs) using a novel Markov-modulated cojump-diffusion (MMCJD) model, which effectively captures the dynamics of stochastic volatility and simultaneous jumps (cojumps) in both the underlying stock prices and foreign exchange (FX) rates. Furthermore, we introduce a Markov-modulated Cox–Ingersoll–Ross (MMCIR) framework to accurately model domestic and foreign instantaneous interest rates within a regime-switching environment. To manage computational complexity, the least-squares Monte Carlo (LSMC) approach is employed for estimating ECB values. Numerical analyses demonstrate that explicitly incorporating stochastic volatilities and cojumps significantly enhances the realism of ECB pricing, underscoring the novelty and contribution of our integrated modeling approach.https://www.mdpi.com/2227-7390/13/13/2075Euro-convertible bond (ECB)Markov-modulated cojump-diffusion (MMCJD) modelcojumpMarkov-modulated Cox–Ingersoll–Ross (MMCIR) modelleast-squares Monte Carlo (LSMC) method |
| spellingShingle | Yu-Min Lian Jun-Home Chen Szu-Lang Liao Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy Mathematics Euro-convertible bond (ECB) Markov-modulated cojump-diffusion (MMCJD) model cojump Markov-modulated Cox–Ingersoll–Ross (MMCIR) model least-squares Monte Carlo (LSMC) method |
| title | Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy |
| title_full | Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy |
| title_fullStr | Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy |
| title_full_unstemmed | Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy |
| title_short | Valuation of Euro-Convertible Bonds in a Markov-Modulated, Cox–Ingersoll–Ross Economy |
| title_sort | valuation of euro convertible bonds in a markov modulated cox ingersoll ross economy |
| topic | Euro-convertible bond (ECB) Markov-modulated cojump-diffusion (MMCJD) model cojump Markov-modulated Cox–Ingersoll–Ross (MMCIR) model least-squares Monte Carlo (LSMC) method |
| url | https://www.mdpi.com/2227-7390/13/13/2075 |
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