Valuation of exchangable convertible bonds

Realdon, Marco (2004) Valuation of exchangable convertible bonds International Journal of Theoretical and Applied Finance, 7, (6), pp. 701-721. (doi:10.1142/S0219024904002657).


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This paper provides a structural valuation model for exchangeable convertible bonds, since such bonds are widespread by now. The model is solved through the Hopscotch finite difference method. As the issuer owns the underlying shares, exchangeable convertibles may be called and the exchange option may be exercised even as the issuer experiences financial distress. The value of exchangeable convertibles always decreases in the volatility of the issuer's assets (unlike the value of ordinary convertibles) and decreases in the correlation between the underlying shares and the issuer's assets. The analysis confirms that the dominant motive for issuing exchangeable convertibles is likely to be to dispose of the underlying shares.

Item Type: Article
Digital Object Identifier (DOI): doi:10.1142/S0219024904002657
ISSNs: 0219-0249 (print)
Keywords: bond valuation, structural model, default risk, exchangeable convertible, hopscotch finite difference method
ePrint ID: 45629
Date :
Date Event
Date Deposited: 18 Apr 2007
Last Modified: 16 Apr 2017 18:41
Further Information:Google Scholar

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