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The handbook of convertible bonds [electronic resource] : pricing, strategies and risk management /
Jan De Spiegeleer and Wim Schoutens.
imprint
Hoboken, N.J. : Wiley ; Chichester : John Wiley [distributor], c2011.
description
xii, 378 p. : ill. ; 25 cm.
ISBN
0470689684 (hbk.), 9780470689684 (hbk.)
format(s)
Book
More Details
added author
series title
imprint
Hoboken, N.J. : Wiley ; Chichester : John Wiley [distributor], c2011.
isbn
0470689684 (hbk.)
9780470689684 (hbk.)
restrictions
Licensed for access by U. of T. users.
catalogue key
11905406
 
Includes bibliographical references (p. ([363]-368) and index.
A Look Inside
Excerpts
Flap Copy
"The magnum opus of convertible bond market literature, of excellent practical value to market participants. The authors present a worthy and accessible review of all facets of this important corporate finance instrument, and I recommend it to every current and potential investor in convertible bonds. Bravo!" - Professor Moorad Choudhry, Department of Economics, London Metropolitan University "The Handbook of Convertible Bonds covers the important market and analytical aspects of the CB business. This is an essential reference work that delivers both breadth of subject matter and depth of detail." - Paul Wilmott, mathematician, author, cheesemaker
Summaries
Back Cover Copy
Having both equity and debt like features, convertible bonds are highly complex, challenging new market entrants to incorporate credit and equity together into their existing pricing tools. The Handbook of Convertible Bond s is a comprehensive guide to the pricing and risk management of this highly profitable asset class in a post credit crunch setting. Part I introduces the convertibles market, covering the impact that the 2008 credit crunch has had on the markets. It shows how to build up a convertible bond and introduces the reader to the traditional convertible vocabulary of yield to put, premium, conversion ratio, delta, gamma, vega and parity. The market of stock borrowing and lending is also covered in detail. Using an intuitive approach based on the Jensen inequality, the authors also show the advantages of using a hybrid to add value. The authors then go on to give the advantages of using a hybrid to add value. The authors then go on to give a complete explanation of the different features that can be embedded in convertible bonds. Part II shows readers how to price convertibles, covering the different parameters used in valuation models: credit spreads, volatility, interest rates ad borrow fees and maturity. Part III concludes the book by covering the all important risk management part of the process in detail. This is a highly piratical book, all products priced are real world examples and numerical examples are not limited to hypothetical convertibles. It is a must read for anyone wanting to safely get into this market.
Bowker Data Service Summary
This is a complete guide to the pricing and risk management of convertible bond portfolios. The book covers the impact that the 2008 credit crunch has had on the markets, it then shows how to build up a convertible bond and introduces the reader to the traditional convertible vocabulary.
Main Description
Having both equity and debt like features, convertible bonds are highly complex, challenging new market entrants to incorporate credit and equity together into their existing pricing tools.
Main Description
This is a complete guide to the pricing and risk management of convertible bond portfolios. Convertible bonds can be complex because they have both equity and debt like features and new market entrants will usually find that they have either a knowledge of fixed income mathematics or of equity derivatives and therefore have no idea how to incorporate credit and equity together into their existing pricing tools. Part I of the book covers the impact that the 2008 credit crunch has had on the markets, it then shows how to build up a convertible bond and introduces the reader to the traditional convertible vocabulary of yield to put, premium, conversion ratio, delta, gamma, vega and parity. The market of stock borrowing and lending will also be covered in detail. Using an intuitive approach based on the Jensen inequality, the authors will also show the advantages of using a hybrid to add value - pre 2008, many investors labelled convertible bonds as 'investing with no downside', there are of course plenty of 2008 examples to prove that they were wrong. The authors then go onto give a complete explanation of the different features that can be embedded in convertible bond. Part II shows readers how to price convertibles. It covers the different parameters used in valuation models: credit spreads, volatility, interest rates and borrow fees and Maturity. Part III covers investment strategies for equity, fixed income and hedge fund investors and includes dynamic hedging and convertible arbitrage. Part IV explains the all important risk management part of the process in detail. This is a highly practical book, all products priced are real world examples and numerical examples are not limited to hypothetical convertibles. It is a must read for anyone wanting to safely get into this highly liquid, high return market.
Table of Contents
Reading this Bookp. xiii
Prefacep. xv
Acknowledgementsp. xvii
The Convertibles Marketp. 1
Terminologyp. 3
The Payoffp. 3
Advantages of Convertiblesp. 4
For the Issuerp. 5
For the Investorp. 8
Basic Terminologyp. 13
Advanced Terminologyp. 17
Legal Terminologyp. 20
Analytics and Hedge Ratiosp. 21
Convertible Bond Anatomyp. 25
Payoff to the Investorp. 25
Payoff Graphp. 26
Examplep. 30
Boundary Conditionsp. 31
Bond Floorp. 32
Parityp. 33
Investment Premiump. 33
Conversion Premiump. 34
Effect of the Call Protectionp. 35
Announcement Effectp. 35
Dilutionp. 41
Arbitrage Activityp. 41
Convertible and Hybrid Structuresp. 43
Preferred Sharesp. 43
Convertible Bond Optionp. 45
Reverse Convertiblep. 45
Perpetualsp. 46
Cross-Currencyp. 46
Mandatoryp. 48
PERCSp. 48
PEPSp. 48
Cashout Optionp. 51
Exchangeablep. 51
Dividend Entitlementp. 52
Convertible Bonds Marketp. 55
The Convertible Universep. 55
Credit Ratingp. 55
Convertible Typep. 56
Convertible Categoryp. 56
Maturityp. 57
Regionp. 57
144Ap. 57
The Prospectusp. 58
The Investorsp. 58
Outright Investorsp. 58
Convertible Bond Arbitrageursp. 59
Examplep. 60
Conclusionsp. 62
Market Participantsp. 62
Lead Managerp. 63
Trusteep. 63
Paying Agentp. 64
Market Makersp. 64
New Issuancep. 64
Pricingp. 67
The Road to Convexityp. 69
Break-Even Analysisp. 69
Dollar Methodp. 70
Equity Methodp. 70
Discounted Yield Advantagep. 72
Convexityp. 74
Jensen's Inequalityp. 75
Time Decayp. 77
Double-Signed Gammap. 79
Colourp. 80
First Steps Using Convexityp. 81
A Fixed Income Investorp. 81
An Equity Investorp. 82
Basic Binomial Treesp. 85
Modelsp. 85
The Basic Ingredientsp. 86
A Primer in Stochastic Calculusp. 91
Stochastic Equationsp. 91
Ito's Lemmap. 92
Shares as Generalized Wiener Processesp. 93
Shares as a Log Processp. 93
Linking Bothp. 94
Elementary Credit Modelp. 95
Probabilitiesp. 95
Recovery Ratep. 98
Credit Trianglep. 98
Binomial Equity Modelsp. 99
Introductionp. 99
Binomial Treep. 100
Unconditional Default Risk in the Binomial Treep. 109
Adding Conditional Default Riskp. 116
Alternative Ways to Incorporate Credit Riskp. 120
Pricing Convertibles Using Binomial Treesp. 122
Credit Spread Modelling in Binomial Trees: A Practitioner's Approachp. 155
Conclusionsp. 156
Multinomial Modelsp. 159
Convergence of the Binomial Modelp. 159
Distribution Errorp. 160
Non-linearity Errorp. 160
Momentsp. 161
Multinomial Modelsp. 164
Trinomial Modelp. 166
Solving Moment-Matching Equationsp. 166
Alternative Trinomial Modelsp. 167
Heptanomial Modelp. 170
Solving Moment-Matching Equationsp. 170
Calculation Timep. 171
Further Optimizationp. 172
Smoothingp. 173
Adaptive Mesh Methodp. 174
Truncationp. 175
Richardson Extrapolationp. 175
Bardhan-Derman-Kani-Ergener Correctionp. 175
Other Refinementsp. 179
Stock Borrowingp. 179
Cross-Currencyp. 182
Discrete Dividendsp. 184
Transaction Costsp. 196
Rational Issuersp. 199
Pricing Dilutionp. 201
Resets in Multinomial Modelsp. 201
Convertible Bond Pricing: Conclusionsp. 203
Ascotsp. 207
Risk Components of a Convertiblep. 207
Asset Swapsp. 208
Introductionp. 208
Credit Riskp. 211
Closing Out the Swapp. 212
Ascotsp. 213
Making the Asset Swap Callablep. 213
Convertible Asset Swap Packagep. 213
Ascot Featuresp. 215
Ascot Term Sheetp. 216
Advantages for the Credit Buyerp. 216
Advantages for the Ascot Buyerp. 217
Creditp. 217
Leveragep. 218
Pricing of Ascotsp. 219
Intrinsic Modelp. 219
Option Modelp. 219
Ascot Greeksp. 222
Rhop. 222
Deltap. 223
Vegap. 225
CB Warrantsp. 226
Risk Management and Strategiesp. 227
Measuring the Riskp. 229
Portfolio Riskp. 229
A Portfolio in Troublep. 231
Risk Categoriesp. 238
Market Riskp. 238
Liquidity Riskp. 239
Takeover Riskp. 242
Example: Nokian Tyres 0% 2014p. 246
Example: Allergan Inc 1.5% 2026p. 247
Documentation Riskp. 248
Model Riskp. 248
Counterparty Riskp. 249
Operational Riskp. 249
Regulation Riskp. 250
Financing Riskp. 250
Coherent Risk Measuresp. 251
Option Greeksp. 253
Introductionp. 253
Extended Tree Methodp. 257
Deltap. 258
Gammap. 260
Rhop. 261
Omicronp. 263
Vegap. 265
Volgap. 266
Epsilonp. 269
Thetap. 270
Fixed Income Measuresp. 272
Duration (Modified)p. 272
Yieldsp. 273
Cross Greeksp. 275
Charmp. 278
Vannap. 279
Speed and Colourp. 282
VaR and Beyondp. 283
VaR Approachesp. 284
VaR-Related Measuresp. 289
VaR Caveatsp. 291
Back Testingp. 292
Stress Testingp. 293
Dynamic Hedgingp. 295
Hedge Instrumentsp. 295
Delta Hedgingp. 297
Introductionp. 297
More than Only Deltap. 297
Delta Hedge: Neutral, Over-or Under-hedgep. 299
Delta Caveatsp. 302
Delta and Volatilityp. 302
Volatilityp. 302
Estimating Historical Volatilityp. 304
Volatility Conep. 306
Volatility Surfacep. 308
Term Structure of ¿Ip. 309
Volatility Smile of ¿Ip. 310
Volsurface Movementsp. 310
At-the-Money Volatilityp. 310
Gamma Tradingp. 311
Rebalancing the Delta Hedgep. 312
Dynamic Hedging with Transaction Costsp. 314
Hedging at What Volatility?p. 317
The Variance Swapp. 324
Introductionp. 324
Volatility Convexityp. 326
Spot and Forward Startp. 327
Mark to Market of the Variance Swapp. 327
Caveatsp. 328
Monte Carlo Techniques for Convertiblesp. 329
Adding More Realismp. 329
Introductionp. 329
Deterministic Volatilityp. 330
Multifactor Modelsp. 330
Monte Carlo Methodp. 334
Introductionp. 334
Generating Random Pathsp. 336
Errorsp. 338
Variance Reductionp. 338
American Monte Carlop. 340
Introductionp. 340
Longstaff and Schwartz Modelp. 343
Examplep. 346
Referencesp. 363
Indexp. 369
Table of Contents provided by Ingram. All Rights Reserved.

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