PT  - JOURNAL ARTICLE
AU  - Mao-Wei Hung
AU  - Jr-Yan Wang
TI  - Pricing Convertible Bonds Subject to Default Risk
AID  - 10.3905/jod.2002.319197
DP  - 2002 Nov 30
TA  - The Journal of Derivatives
PG  - 75--87
VI  - 10
IP  - 2
4099  - https://pm-research.com/content/10/2/75.short
4100  - https://pm-research.com/content/10/2/75.full
AB  - Convertible bonds are commonplace securities, but valuing them properly is tricky. In addition to being exposed to interest rate risk like any bond in a stochastic interest rate environment, they contain both an option to convert them into shares of the issuing firm, and also exposure to the risk of default. In this article, Hung and Wang present a lattice technique that allows relatively straightforward valuation, even in the presence of these three sources of risk. After describing their technique in general, they put it to use to evaluate a convertible bond issued by Lucent.