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Appears in Collections:Accounting and Finance Journal Articles
Peer Review Status: Refereed
Title: An Empirical Comparison of Convertible Bond Valuation Models
Author(s): Zabolotnyuk, Yuriy
Jones, Robert
Veld, Chris
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Keywords: convertible bonds
Tsiveriotis-Fernandes model
Ayache-Forsyth-Vetzal model
Brennan-Schwartz model
convertible bond valuation models
Marquardt algorithm
Issue Date: Jun-2010
Citation: Zabolotnyuk Y, Jones R & Veld C (2010) An Empirical Comparison of Convertible Bond Valuation Models, Financial Management, 39 (2), pp. 675-706.
Abstract: This paper empirically compares three convertible bond valuation models. We use an innovative approach where all model parameters are estimated by the Marquardt (1963) algorithm using a subsample of convertible bond prices. The model parameters are then used for out-of-sample forecasts of convertible bond prices. The mean absolute deviation is 1.86% for the Ayache-Forsyth-Vetzal (2003) model, 1.94% for the Tsiveriotis-Fernandes (1998) model, and 3.73% for the Brennan-Schwartz (1980) model. For this and other measures of fit, the Ayache-Forsyth-Vetzal (2003) and Tsiveriotis-Fernandes (1998) models outperform the Brennan-Schwartz (1980) model.
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