Convertible bond prices impacted by credit ratings and stochastic interest rates.
The study created a model to predict prices of convertible bonds using random interest rates. They found that the bond price depends on the issuer's credit rating at the start. When the issuer defaults, the bond price drops to the bottom percentile of stock prices. Changes in the bond's value are strongly linked to its moneyness and the rating changes. Also, fluctuating interest rates can significantly impact the bond price if the market price of interest rate risk is not zero.