Convertible bond markets:
Gespeichert in:
| 1. Verfasser: | |
|---|---|
| Format: | Buch |
| Sprache: | English |
| Veröffentlicht: |
Houndmills [u.a.]
Macmillan Press
1997
|
| Ausgabe: | 1. publ. |
| Online-Zugang: | Inhaltsverzeichnis |
| Beschreibung: | XVI, 144 S. |
| ISBN: | 0333687493 |
Internformat
MARC
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| 100 | 1 | |a Philips, George A. |e Verfasser |4 aut | |
| 245 | 1 | 0 | |a Convertible bond markets |c George A. Philips. Foreword by Sajid Ramzan |
| 250 | |a 1. publ. | ||
| 264 | 1 | |a Houndmills [u.a.] |b Macmillan Press |c 1997 | |
| 300 | |a XVI, 144 S. | ||
| 336 | |b txt |2 rdacontent | ||
| 337 | |b n |2 rdamedia | ||
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Datensatz im Suchindex
| _version_ | 1804138769059676160 |
|---|---|
| adam_text | Contents
List of Figures ix
List of Tables xi
Foreword xiii
Preface xv
1 Convertible Bonds 1
Introduction 1
Terms and conditions 2
Parity 5
Investment value or floor 6
The global convertible bond market 11
2 Convertible Financing 18
Generic convertible bond 20
Altering the life of the loan 20
Altering the premium/coupon mix 23
Synthesising equity 23
Put and call provisions 27
Original issue discount note 27
Exchangeable bonds 29
3 Payoff Analysis: A Primer for Theoretical Valuation 30
Payoff analysis 30
The zero coupon convertible bond 32
Coupon paying converts 35
4 Fair Value of a Convertible Bond 38
Fair price 38
Using the binomial model to evaluate the price of a convert 39
Underlying equity tree 43
Bond tree 46
Common embedded options 48
¦- Call provisions 48
- Forced conversion 50
Put provisions 51
vii
Contents
Varying parameters in the model 52
Allowing for dividends 57
Conclusions 57
5 An Introduction to Interest Rate Sensitivity of Convertible Bonds 59
Interest rate risk and straight bonds 59
Liquidity preference theory 60
Expectations 60
Segmentation theory 61
Duration 62
Interest rate risk and convertible bonds 66
Bond futures and hedging interest rate risk 69
Establishment of an interest rate hedge using futures 72
Appendix: Price/Yield Relationships and Price Risk 73
6 Default Risk Assessed 86
Role of the rating agencies 86
Default premiums 87
Convertible bonds and default premiums 90
Straight bond equivalent 91
Implied spread 91
Sensitivity to changes in theoretical spreads 91
7 Long Volatility 95
Introduction 95
What is meant by volatility ? 95
Problems and practical issues when valuing convertible bonds 100
Implied volatility 105
Trading volatility and establishment of a market neutral hedge 106
Premium compression 109
Concluding remarks 121
8 Multivariate Hedging 122
Introduction 122
A portfolio of individual options versus an index option 123
Portfolio selection and derivatives 124
Tracking error 129
Advantages and disadvantages of multivariate perspective 131
Bibliography 134
Index 139
viii
List of Figures
1.1 Intrinsic value of a convertible bond 6
1.2 Investment value of a convertible bond 7
1.3 Convertible bond minimum price boundaries 8
1.4 Paying a premium 9
1.5 Graphical representation of premium 10
1.6 Expected returns and risk 3
1.7 Risk spectrum 14
2.1 Spectrum of convertible bond issues 19
2.2 Plain Vanilla CB - Five year bond 21
2.3 Plain Vanilla CB - Seven year bond 22
2.4 Plain Vanilla CB - Five year bond 24
2.5 Plain Vanilla CB - Five year bond 25
2.6 Synthetic equity 26
2.7 Convertible bond with put features 28
3.1 Convertible bond pricing 33
3.2 Synthetic convertible/convertible bond pricing 34
3.3 Discounted parity and the convertible bond 36
4.1 One step results 4^
4.2 One step results for convertible bond 43
4.3 Underlying equity tree 44
4.4 Convertible bond price curve 52
4.5 Delta function 53
4.6 Gamma function ^
4.7 Impact of differing volatility estimates 55
4.8 Impact of varying interest rates 56
4.9 The underlying equity tree and dividend yields 57
5.1 Liquidity preference and the yield curve 61
5.2 Expectations and differing yield curve characteristics 62
5.3a Yield curve - US Treasury 63
5.3b Yield curve - South African Government 64
5.4 Convertible bond pricing
5.5 Impact of varying interest rates on convertible bonds 69
5.6 Rho relatives of typical convertible bonds 70
ix
List of Figures
5A. 1 Price/yield - one year bond 82
5A.2 dP/dY - one year bond 82
5A.3 Price/yield - five year bond 83
5A.4 dP/dY - five year bond 83
5A.5 Price/yield - ten year bond 84
5A.6 dP/dY - ten year bond 84
5A.7 Price/yield - twenty year bond 85
5A.8 dP/dY - twenty year bond 85
6.1 Default premiums 87
6.2 Bond yields by ratings, April 1991-January 1996 89
6.3 Impact of varying credit spreads 93
6.4 Omicron 94
7.1 Varying volatility and the fair price of a convertible bond 96
7.2 Microsoft share price, June-November 1995 98
7.3 Logged returns, June-November 1995 99
7.4 Relative frequency distribution 100
7.5 The concept of mean reversion 103
7.6 Actual distribution versus normal distribution 104
7.7 Concept of long volatility 107
7.8 Magnified section of price curve - dynamic rehedging 108
7.9 Premium compression with increasing gamma 110
7.10 Equity and convertible bond returns to Fujitsu Ltd,
6 January 1995-8 December 1995 111
7.11 Fujitsu no. 8, convertible bond pricing, 6 January 1995 114
7.12 Fujitsu no. 8, theoretical delta function at beginning of period 115
7.13 2002 5.5% JGB, January-December 1995 116
7.14 Shifts in the short and long Yen yield curves,
January-December 1995 117
7.15 Hedge profit profile, January-June 1995 118
7.16 Returns to hedge on leverage and unleveraged basis,
January-June 1995 120
8.1 Hedge adjustments considered 125
8.2 Beta of security A 126
8.3 Historical beta 127
8.4 Tracking error, expected return, and number of issues 130
8.5 Basket hedge strategy: Cresvale A fund Ltd,
February 1991-June 1992 132
x
List of Tables
1.1 Straight bond, terms and conditions 3
1.2 Plain vanilla CB, terms and conditions 4
2.1 Original issue discount note (OID) 29
3.1 Example illustrating minimum bound for American call 31
3.2 Example illustrating terminal value of convert 32
4.1 Using the binomial model to evaluate the price of a convert 45
4.2 Underlying equity tree 45
4.3 Straight bond equivalent 47
4.4 Plain vanilla CB with adjusted discount rate 47
4.5 Callable CB with adjusted discount rate 49
4.6 Callable/puttable CB with adjusted discount rate 51
5.1 Duration 65
5.2 XYZ Corp., 1.5% (semi-annual) five year CB 68
5A.1 One year straight bond 74
5A.2 Five year straight bond 76
5A. 3 Ten year straight bond 78
5A.4 Twenty year straight bond 80
6.1 Ratings of Standard and Poors/Moody s 87
6.2 Default rates, 1971-90 90
6.3 Summary of defaulted bond price distributions, 1974-95 90
6.4 Risk/return on Keystone funds, 1968-91 92
7.1 Estimation of volatility, June-November 1995 97
7.2 Example of puttable/callable CB pricing 106
7.3 Volatility and fair value 106
7.4 Fujitsu issue, terms
7.5 Raw data for Fujitsu example IJ
7.6 Cost of carry and leverage on CBs 9
8.1 Index options compared to portfolios of individual options 123
xi
|
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| isbn | 0333687493 |
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| spelling | Philips, George A. Verfasser aut Convertible bond markets George A. Philips. Foreword by Sajid Ramzan 1. publ. Houndmills [u.a.] Macmillan Press 1997 XVI, 144 S. txt rdacontent n rdamedia nc rdacarrier HBZ Datenaustausch application/pdf http://bvbr.bib-bvb.de:8991/F?func=service&doc_library=BVB01&local_base=BVB01&doc_number=017263751&sequence=000002&line_number=0001&func_code=DB_RECORDS&service_type=MEDIA Inhaltsverzeichnis |
| spellingShingle | Philips, George A. Convertible bond markets |
| title | Convertible bond markets |
| title_auth | Convertible bond markets |
| title_exact_search | Convertible bond markets |
| title_full | Convertible bond markets George A. Philips. Foreword by Sajid Ramzan |
| title_fullStr | Convertible bond markets George A. Philips. Foreword by Sajid Ramzan |
| title_full_unstemmed | Convertible bond markets George A. Philips. Foreword by Sajid Ramzan |
| title_short | Convertible bond markets |
| title_sort | convertible bond markets |
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