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Valuation of exchangeable convertible bonds

Realdon, M. (2004) Valuation of exchangeable convertible bonds. International Journal of Theoretical and Applied Finance, 7 (6). pp. 701-721. ISSN 0219-0249

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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
Institution: The University of York
Academic Units: The University of York > Economics and Related Studies (York)
Depositing User: York RAE Import
Date Deposited: 14 May 2009 12:26
Last Modified: 14 May 2009 12:26
Published Version: http://dx.doi.org/10.1142/S0219024904002657
Status: Published
Publisher: World Scientific Publishing
Identification Number: 10.1142/S0219024904002657
URI: http://eprints.whiterose.ac.uk/id/eprint/6419

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