Journal ArticleDOI
Analyzing Convertible Bonds
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The convertible bond is a hybrid security which, while retaining most of the characteristics of straight debt, offers, in addition, the upside potential associated with the underlying common stock.Abstract:
The convertible bond is a hybrid security which, while retaining most of the characteristics of straight debt, offers, in addition, the upside potential associated with theunderlying common stock. As a quid pro quo for the upside potential the convertible bond is typically subordinated to other corporate debt and carries a lower coupon rate than would an otherwise equivalent straight bond.read more
Citations
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Corporate Debt Value, Bond Covenants, and Optimal Capital Structure
TL;DR: In this article, the authors examined corporate debt values and capital structure in a unified analytical framework and derived closed-form results for the value of long-term risky debt and yield spreads, and for optimal capital structure.
Journal ArticleDOI
Modeling Term Structures of Defaultable Bonds
TL;DR: In this paper, a reduced-form model of the valuation of contingent claims subject to default risk is presented, focusing on applications to the term structure of interest rates for corporate or sovereign bonds and the parameterization of losses at default in terms of the fractional reduction in market value that occurs at default.
Journal ArticleDOI
An Empirical Comparison of Alternative Models of the Short‐Term Interest Rate
TL;DR: In this article, the authors compare a variety of continuous-time models of the short-term riskless rate using the Generalized Method of Moments and find that the most successful models are those that allow the volatility of interest rate changes to be highly sensitive to the level of the riskless rates.
Journal ArticleDOI
Convertible bonds as backdoor equity financing
TL;DR: In this paper, the authors argue that corporations may use convertible bonds as an indirect way to get equity into their capital structures when adverse-selection problems make a conventional stock issue unattractive.
Journal ArticleDOI
Does default risk in coupons affect the valuation of corporate bonds?: A contingent claims model
TL;DR: The early work of Black and Scholes, and Merton, made the connection between conventional options and corporate liabilities as discussed by the authors, and the standard textbooks now employ option-pricing arguments in discussing the valuation of stocks, bonds, convertible bonds and warrants.
References
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Journal ArticleDOI
The Pricing of Options and Corporate Liabilities
Fischer Black,Myron S. Scholes +1 more
TL;DR: In this paper, a theoretical valuation formula for options is derived, based on the assumption that options are correctly priced in the market and it should not be possible to make sure profits by creating portfolios of long and short positions in options and their underlying stocks.
Book
Theory of rational option pricing
TL;DR: In this paper, the authors deduced a set of restrictions on option pricing formulas from the assumption that investors prefer more to less, which are necessary conditions for a formula to be consistent with a rational pricing theory.
Journal ArticleDOI
A contingent-claims valuation of convertible securities
TL;DR: In this paper, the Black-Scholes Option Model is used to price convertible securities as contingent claims on the firm as a whole, and the optimal policies for call and conversion of these securities are determined via the criterion of dominance.
Journal ArticleDOI
Convertible bonds: valuation and optimal strategies for call and conversion
TL;DR: In this paper, the authors apply the principles of the option pricing model to the most common type of convertible security, namely the convertible bond, and show that the optimal call strategy is simply to call the bond as soon as the value of the bond if called is equal to the value if not called, so that the problem is considerably simplified.