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Hi guys,
I am trying to model credit spread for a Private Convertible Bond, with publicly trading stock. We are pricing this security using Bloomberg Convert model with a Jump Diffusion stochastic process. The problem with this model is that the spreads are static at 400/450 basis points. We want to incorporate a market based spread curve. But the company has some unique issues:the product, lack of innovation and its declining market share makes it difficult to put it in the same category as some of its other peers who have issued non-convertible bonds. So we need to come up with different ways of modelling credit curves. Originally, the idea was to create some sort of a public market curve using robust regression and then adding high and low frequency data points of the company. But that doesn;t seem logical, if we cannot find similar comps. Using estimated credit rating assigned to convertible bond to look for similarly rated non-convertible bonds is not accurate but looks like this is where we are headed. Any thought or input regarding this or any model suggestions to model credit spreads for a company that has no other public debt, and only private convertible bonds?
I am trying to model credit spread for a Private Convertible Bond, with publicly trading stock. We are pricing this security using Bloomberg Convert model with a Jump Diffusion stochastic process. The problem with this model is that the spreads are static at 400/450 basis points. We want to incorporate a market based spread curve. But the company has some unique issues:the product, lack of innovation and its declining market share makes it difficult to put it in the same category as some of its other peers who have issued non-convertible bonds. So we need to come up with different ways of modelling credit curves. Originally, the idea was to create some sort of a public market curve using robust regression and then adding high and low frequency data points of the company. But that doesn;t seem logical, if we cannot find similar comps. Using estimated credit rating assigned to convertible bond to look for similarly rated non-convertible bonds is not accurate but looks like this is where we are headed. Any thought or input regarding this or any model suggestions to model credit spreads for a company that has no other public debt, and only private convertible bonds?