Dynamic Programming for Valuing Options Embedded in Corporate Bonds

Authors

Malek Ben-Abdellatif, ESLSCA University
Hatem Ben-Ameur, HEC Montréal
Rim Chérif, The American University in Cairo
Tarek Fakhfakh, University of Economic Science and Management of Sfax

Third Author's Department

Management Department

Find in your Library

https://doi.org/10.3905/jod.2025.1.234

All Authors

Malek Ben-Abdellatif Hatem Ben-Ameur Rim Chérif Tarek Fakhfakh

Document Type

Research Article

Publication Title

Journal of Derivatives

Publication Date

9-1-2025

doi

10.3905/jod.2025.1.234

Abstract

We consider a structural model to design and evaluate the American call, conversion, and put options embedded in corporate bonds. We use dynamic programming and finite elements to efficiently solve the setting. We show that optimal redemption, conversion, and retraction can be characterized by a set of thresholds at each decision date. We achieve a sensitivity analysis of the option values with respect to the model parameters, and document their interactions.

First Page

75

Last Page

92

Recommended Citation

APA Citation

Ben-Abdellatif, M. Ben-Ameur, H. Chérif, R. & Fakhfakh, T. (2025). Dynamic Programming for Valuing Options Embedded in Corporate Bonds. Journal of Derivatives, 33(1), 75–92. https://doi.org/10.3905/jod.2025.1.234

MLA Citation

Ben-Abdellatif, Malek, et al. "Dynamic Programming for Valuing Options Embedded in Corporate Bonds." Journal of Derivatives, vol. 33, no. 1, 2025, pp. 75–92.
https://doi.org/10.3905/jod.2025.1.234