This paper empirically compares three convertible bond valuation models. We use an innovative approach where all model parameters are estimated by the Marquardt 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 model, 1.94% for the Tsiveriotis-Fernandes model, and 3.73% for the Brennan-Schwartz model. For this and other measures of fit, the Ayache-Forsyth-Vetzal and Tsiveriotis-Fernandes models outperform the Brennan-Schwartz model.

Additional Metadata
Persistent URL dx.doi.org/10.1111/j.1755-053X.2010.01088.x
Journal Financial Management
Citation
Zabolotnyuk, Y, Jones, R. (Robert), & Veld, C. (Chris). (2010). An Empirical Comparison of Convertible Bond Valuation Models. Financial Management, 39(2), 675–706. doi:10.1111/j.1755-053X.2010.01088.x