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Optimal policies of call with notice period requirement for American warrants and convertible bonds

Authors Dai, Min
Kwok, Yue Kuen
Issue Date 2004
Summary When an issuer calls its American warrant or convertible bond, the holder is usually given a notice period to decide either selling the derivative back to the issuer at the call price or exercising 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.
Language English
Format Preprint
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