IDEAS home Printed from https://ideas.repec.org/a/taf/ufajxx/v52y1996i5p35-44.html
   My bibliography  Save this article

Convertible Bonds: Model, Value Attribution, and Analytics

Author

Listed:
  • Thomas S.Y. Ho
  • David M. Pfeffer

Abstract

Convertible bonds provide investors an option to convert the bond into the underlying equity. For this reason, a convertible bond is exposed to both equity and interest rate risk. Incorporating these two sources of risk into the model is particularly important for callable issues. In this study, a two-factor model is used to analyze a sample of bonds. The model shows that the correlation of stock risk and interest rate risk may affect convertible bond prices significantly. The bond pricing model also provides portfolio analytics and can decompose a convertible bond into its basic components—the stock and bonds with different maturities. This approach enables an investor to implement a more precise hedging strategy than is possible using only delta.

Suggested Citation

  • Thomas S.Y. Ho & David M. Pfeffer, 1996. "Convertible Bonds: Model, Value Attribution, and Analytics," Financial Analysts Journal, Taylor & Francis Journals, vol. 52(5), pages 35-44, September.
    • Handle: RePEc:taf:ufajxx:v:52:y:1996:i:5:p:35-44
    DOI: 10.2469/faj.v52.n5.2022
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.2469/faj.v52.n5.2022
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.2469/faj.v52.n5.2022?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:ufajxx:v:52:y:1996:i:5:p:35-44. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/ufaj20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.