Name
Abstract | ||
|---|---|---|
We consider the problem of valuing contingent capital in the form of debt that converts to equity when a capital ratio falls below a threshold. With continuous monitoring of the conversion trigger and with asset value modeled as geometric Brownian motion, the value admits a closed-form expression. Here we focus on the case of a discretely monitored trigger and the simulation of three potential mechanisms for conversion in discrete time. We show how to use the continuous-time formulas as control variates through exact joint simulation of the discrete- and continuous-time processes. We then investigate continuity corrections to approximate discrete-time results using continuous-time formulas and compare results across alternative conversion mechanisms. |
Year | DOI | Venue |
|---|---|---|
2010 | 10.1109/WSC.2010.5678968 | Winter Simulation Conference |
Keywords | Field | DocType |
financial management,venture capital,contingent capital valuation,continuity corrections,continuous-time formulas,continuous-time processes,conversion trigger,debt-equity conversion,discrete-time processes,geometric Brownian motion | Debt-to-equity ratio,Simulation,Computer science,Control variates,Debt,Capital adequacy ratio,Equity (finance),Venture capital,Discrete time and continuous time,Geometric Brownian motion | Conference |
ISSN | ISBN | Citations |
0891-7736 | 978-1-4244-9866-6 | 0 |
PageRank | References | Authors |
0.34 | 0 | 2 |
Name | Order | Citations | PageRank |
|---|---|---|---|
| Paul Glasserman | 1 | 496 | 95.86 |
| Behzad Nouri | 2 | 3 | 0.90 |