An empirical comparison of convertible bond valuation models

Zabolotnyuk, Y., Jones, R. and Veld, C. (2010) An empirical comparison of convertible bond valuation models. Financial Management, 39(2), pp. 675-706. (doi: 10.1111/j.1755-053X.2010.01088.x)

Abstract

This paper empirically compares three convertible bond valuation models. We use an innovative approach where all model parameters are estimated by the Marquardt algorithm using a subsample of convertible bond prices. The model parameters are then used for out-of-sample forecasts of convertible bond prices. The mean absolute deviation is 1.86% for the Ayache-Forsyth-Vetzal model, 1.94% for the Tsiveriotis-Fernandes model, and 3.73% for the Brennan-Schwartz model. For this and other measures of fit, the Ayache-Forsyth-Vetzal and Tsiveriotis-Fernandes models outperform the Brennan-Schwartz model.

• Item Type: Articles
• Additional Information: The definitive version is available at www3.interscience.wiley.com
• Status: Published
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Veld, Professor Chris
• Authors: Zabolotnyuk, Y., Jones, R., and Veld, C.
• Subjects: H Social Sciences > HG Finance
• College/School: College of Social Sciences > Adam Smith Business School > Accounting and Finance
• Journal Name: Financial Management
• Journal Abbr.: FM
• Publisher: Wiley-Blackwell
• ISSN: 0046-3892
• ISSN (Online): 1755-053X
• Published Online: 22 June 2010
• Copyright Holders: Copyright © 2010 Financial Management Association International
• First Published: First published in Financial Management 39(2):675-706
• Publisher Policy: Reproduced in accordance with the copyright policy of the publisher