Valuation of the Convertible Bonds under Penalty TF model using Finite Element Method
In this paper, the TF system of two-coupled Black-Scholes equations for pricing the convertible bonds is solved numerically by using the P1 and P2 finite elements with the inequality constraints approximated by the penalty method. The corresponding finite element ODE system is numerically solved by using a modified Crank-Nicolson scheme, in which the non-linear system is solved at each time step by the Newton-Raphson method for non-smooth functions. Moreover, the corresponding Greeks are also calculated by taking advantage of the P1-P2 finite element approximation functions. Numerical solutions by the finite element method compare favorably with the solutions by the finite difference method in literature.
PDF AbstractTasks
Datasets
Add Datasets
introduced or used in this paper
Results from the Paper
Submit
results from this paper
to get state-of-the-art GitHub badges and help the
community compare results to other papers.
Methods
No methods listed for this paper. Add
relevant methods here
