Re: [Quantlib-dev] callable bonds

[John M. <jwm...@ya...>]

Convertible bonds use the binomialconvertibleengine class in
pricingengines/hybrid/binomialconvertibleengine.hpp. The class passes the
convertible bond arguments, adjusts the underlying stock for dividends, and most
importantly, sets up the underlying stock tree. DiscretizedConvertible processes
coupons, calls/puts, and convertibility. The convertible bond is actually
stepped back in TsiveriotisFernandesLattice. 

If you make the exercise European and set the conversion ratio low enough, then
DiscretizedConvertible will only adjust for calls/puts and coupons. The convert
is stepped back at a blended rate (a combination of the risk-free rate and the
spread). If the conversion ratio is low enough, then the result should be a
corporate bond that is stepped back at risk-free + spread, and occasionally
adjusted for coupons and calls/puts. The underlying convertibility will not
influence the result at all.

If this sounds like a good direction, then you would need to alter
TsiveriotisFernandesLattice since it works with a constant risk-free and spread
rate. It's easy to adapt it for a yield and spread curve, and it should be open
to other interest rate models.