A structured PDE framework for pricing resettable convertible bonds
Abstract
We present a unified PDE framework for pricing resettable convertible bonds within the blended-discounting paradigm. The convertible-bond value is decomposed into a risky bond and a separately identified conversion-option component, which admits a closed-form solution in the conversion-only case. Reset clauses are modeled as a matrix-valued degenerate parabolic system, solved through a stable and convergent finite difference scheme. The resulting formulation preserves analytical clarity and computational efficiency.
Fields of Study & Subjects
Stochastic processes and financial applications
Credit Risk and Financial Regulations
Financial Markets and Investment Strategies
Publication details
- Journal / source
- Quantitative Finance
- Volume
- 26
- Issue
- 3
- Pages
- 419–432
- Publication date
- 2 February 2026
- Language
- EN