A lattice approach for pricing convertible bond asset swaps with market risk and counterparty risk

► I propose a new lattice framework for valuing CBs and CBASs with market risk and counterparty risk. ► The reduced-form approach is generalized to include a CEV process for equity price prior to default. ► A novel default intensity process is construct which is specified as a function of time, stock price, and interest rate. ► When valuing asset swaps, counterparty risk is taken into consideration.