CONVERTIBLE BOND

Convertible bonds are complex securities that are part debt, part equity. The main feature of a convertible bond is the conversion that allows the bondholder to convert debt to equity. In addition, there can be many other “exotic” features such as callable, puttable, forced conversion, soft call, contingent conversion, etc. Given their complexities, convertible bonds’…

Read More Pricing Convertible Bonds Using Monte-Carlo Simulations

A convertible bond is a type of bond that comes with the right to convert the debt into equity instruments. Investors that invest in these bonds get the benefits of other debt instruments while also getting the option to receive equity investments. Convertible debts come with interest payments and face value like other debt instruments.…

Read More Convertible Bond Tax Treatment

Investing in a company’s equity instruments is straightforward. Investors pay to receive a company’s stock, which gives them the right to receive dividends and voting rights. However, there are some instruments that investors can convert into equity instruments in the future. Among these, the two common ones that investors usually confuse include convertible bonds and…

Read More Convertible Bond vs Warrant

Investors have many options when it comes to investing in bonds. Usually, investors can get bonds directly from the issuer. These issuers may include municipalities, government agencies, or companies. On the other hand, investors can also invest in funds that offer convertible bond investments. Among these investments, investors can choose to include convertible bond funds…

Read More What Is A Convertible Bond Fund

Convertible bonds are complex, hybrid securities. In finance, a convertible bond or convertible note or convertible debt (or a convertible debenture if it has a maturity of greater than 10 years) is a type of bond that the holder can convert into a specified number of shares of common stock in the issuing company or…

Read More Convertible Bond Arbitrage Using the Volatility Surface

Convertible bonds are complex financial instruments. However, the accounting treatment for convertible bonds has been simplified. The Financial Accounting Standards Board (FASB) released new guidance last month on accounting for convertible instruments and contracts in an entity’s own equity… Convertible instruments are debt or equity instruments (or features) that either require or permit the investor…

Read More Simplified Accounting for Convertible Bonds

Convertible bond issuance has increased during the Covid 19 pandemic. From a funding perspective, convertible bonds have many attractive features for corporates, which have become more important during the pandemic. …In volatile markets, the value of the embedded option in a convertible bond increases. The asset class also becomes more attractive to investors owing to…

Read More Convertible Bond Issuance Has Increased

Convertible debt is a type of loan that can be converted back to stock after some specified future date. When making an investment in convertible debt, both the issuer and investor are clear that there is a possibility of debt being converted into stock in the future. International Account Standard 32 deals with accounting for convertible debt. A…

Read More Accounting for Convertible Debt

In a previous post, we presented a theoretical framework for pricing convertible bonds and preferred shares.  We also provided an example of pricing a convertible bond in Excel. In this installment, we present an example of pricing a convertible bond in Python. Recall that a convertible bond (or preferred share) is a hybrid security, part…

Read More Valuing a Convertible Bond-Derivative Pricing in Python

Investors in South Korea have lost money in a complex derivative linked to constant maturity swap.  In search for higher yields, they are also putting money into another complex financial instrument, convertible bonds. Bloomberg recently reported, Sales of convertibles, which pay low coupons and let investors convert into stock if the issuer’s shares rise enough,…

Read More Are Convertible Bonds Really Attractive?