Convertible bond pricing models

Jonathan Andrew Batten, Karren Lee Hwei Khaw, Martin Young

    Research output: Contribution to journalArticleResearchpeer-review

    8 Citations (Scopus)

    Abstract

    Convertible bonds are an important segment of the corporate bond market, with worldwide outstandings approaching US 235 billion. Simple pricing models value a convertible bond as being equivalent to a straight bond with an embedded option that enables the bond holder to convert to a specific amount of common stock. The straight bond is subject to both interest rate and credit risk, whereas the option to convert is dependent on the underlying stock price, which exposes the convertible bond holder to equity risk. The complexity of these features means that convertible bonds tend to be treated casually in major derivatives and corporate finance textbooks. This paper presents a survey of the theoretical and empirical aspects of convertible bond pricing. The limitations of these studies are highlighted to identify those areas of research that may improve the valuation process and facilitate the application of these securities for corporate financing.
    Original languageEnglish
    Pages (from-to)775 - 803
    Number of pages29
    JournalJournal of Economic Surveys
    Volume28
    Issue number5
    DOIs
    Publication statusPublished - 2014

    Cite this

    Batten, J. A., Khaw, K. L. H., & Young, M. (2014). Convertible bond pricing models. Journal of Economic Surveys, 28(5), 775 - 803. https://doi.org/10.1111/joes.12016
    Batten, Jonathan Andrew ; Khaw, Karren Lee Hwei ; Young, Martin. / Convertible bond pricing models. In: Journal of Economic Surveys. 2014 ; Vol. 28, No. 5. pp. 775 - 803.
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    Batten, JA, Khaw, KLH & Young, M 2014, 'Convertible bond pricing models', Journal of Economic Surveys, vol. 28, no. 5, pp. 775 - 803. https://doi.org/10.1111/joes.12016

    Convertible bond pricing models. / Batten, Jonathan Andrew; Khaw, Karren Lee Hwei; Young, Martin.

    In: Journal of Economic Surveys, Vol. 28, No. 5, 2014, p. 775 - 803.

    Research output: Contribution to journalArticleResearchpeer-review

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