Valuation of convertible bonds with default risk

Abstract

In this thesis, the method which values convertible bonds is introduced. We focus the probability of default that may be occurred in a few years later. So we have to think that if the conversion is not happened, then we use the risky interest rate to roll back the convertible bond. And If the bonds are converted into the stocks, then the risk-free interest rate is applied. Thus, we take into account the stochastic properties of the two processes.