Pricing convertible bonds

Batten, Jonathan A. and Khaw, Karren Lee Hwei and Young, Martin R. (2018) Pricing convertible bonds. Journal of Banking & Finance, 92. pp. 216-236. ISSN 0378-4266

Full text not available from this repository.
Official URL: https://doi.org/10.1016/j.jbankfin.2018.05.006

Abstract

Convertible bonds are an important segment of the corporate bond market although their pricing is compromised by the presence of complex option features and difficulty in measuring the risk factors needed as inputs to standard valuation models. Using a unique sample of pure U.S. convertible bonds, devoid of other optionality, we show that underpricing is affected mainly by the degree of underlying asset volatility and liquidity. Convertible bonds with a greater debt component (more credit sensitive), longer time to maturity and lower quality credit ratings are also found to be more underpriced. The global financial crisis (GFC) is an episode with high-underlying asset volatility and one subject to short-selling constraints. During this period there was deep convertible bond discounting, which highlights the importance of market conditions and the temporal, rather than systematic, nature of the pricing errors.

Item Type: Article
Uncontrolled Keywords: Convertible bonds; Global financial crisis; Pricing; Stochastic volatility; Real-time trade prices; Liquidity
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Business and Accountancy > Dept of Finance and Banking
Depositing User: Ms. Juhaida Abd Rahim
Date Deposited: 13 Sep 2019 04:16
Last Modified: 13 Sep 2019 04:16
URI: http://eprints.um.edu.my/id/eprint/22334

Actions (login required)

View Item View Item