Alternative Stochastic Binomial Trees for Quantitative Analysis of Convertible Bonds

The objective of the present study is to implement the alternative stochastic binomial trees for the evaluation and estimation of the main sensitivity measures of convertible bonds, thus filling a gap in scientific literature. The paper proposes the implementation of the Haahtela, Jarrow-Rudd and Tian numerical schemes and explores the characteristics, convergence properties and reliability of these evaluation tools. A comprehensive case-study considering the German market, which is an extremely active market in the issuance and trading of these hybrid instruments, is also illustrated.