Optimal policies of call with notice period requirement

Min Dai, Yue Kuen Kwok

Research output: Journal article publicationJournal articleAcademic researchpeer-review

8 Citations (Scopus)

Abstract

When an American warrant or a convertible bond is called by its issuer, the holder is usually given a notice period to decide whether to sell the derivative back to the issuer at the call price or to exercise the conversion right. Several earlier papers have shown that such notice period requirement may substantially affect the optimal call policy adopted by the issuer. In this paper, we perform theoretical studies on the impact of the notice period requirement on issuer's optimal call policy for American warrants and convertible bonds. We also examine how the optimal call policy of the issuer interacts with holder's optimal conversion policy.

Original languageEnglish
Pages (from-to)353-373
Number of pages21
JournalAsia-Pacific Financial Markets
Volume12
Issue number4
DOIs
Publication statusPublished - Dec 2005

Keywords

  • American warrants
  • Call policies
  • Conversion policies
  • Convertible bonds
  • Notice period requirement

ASJC Scopus subject areas

  • Finance

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