The software handles embedded puts and calls (including soft calls) and has limited support for multi-currency structures. The software uses a binomial lattice with the stock price as the only state variable. This means that all call and put features are regarded as options only on the stock price, and values that may attach to these because of the volatility of interest rates, exchange rates or the credit spread are ignored. The software does not use the warrant valuation approach which requires the volatility of equity (stocks plus warrants). Instead, it ignores the dilution effect and uses stock price volatility which is more readily available. Cash flows arising out of conversion into equity are discounted at the risk free rate as required by risk neutral valuation. Coupons and redemption cash flows are discounted at the cost of debt. The approach used is that of Tsiveriotis, K. and Fernandes,C. (1998) "Valuing Convertible Bonds with Credit Risk", Journal of Fixed Income, 8(2), 95-102.
This software was designed for educational use and no representation is made that it is suitable for commercial use. No warranty is provided that the software is error free.