Hi all,is there anybody out there who can give me a hint, howto include stochastic interest rates in the pricing of convertibles.The basic approach I was following is the one in wilmotts "derivatives"

Are you looking to price via formula or simulation?The biggest effect of interest rates is usually on the creditworthiness of the issuer, the second biggest will usually be on the stock price (although this varies greatly by industry), and the third biggest on the value of the bond if you don't convert. One hint is to start with a convertible yield curve for newly-issued convertibles of the same credit rating as the one you are pricing. This yield curve, if you can get data, will incorporate a lot of the information you would otherwise have to add to your model. Another hint is not to get too fancy with the interest rate model, a simple model will capture enough for reliable pricing, at least as long as the bond is in or near the money.