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Analyzing Convertible Bonds

Published online by Cambridge University Press:  06 April 2009

Michael J. Brennan  and
Eduardo S. Schwartz
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Extract

The convertible bond is a hybrid security which, while retaining most of the characteristics of straight debt, offers, in addition, the upside potential associated with theunderlying common stock. As a quid pro quo for the upside potential the convertible bond is typically subordinated to other corporate debt and carries a lower coupon rate than would an otherwise equivalent straight bond.

Type
The Term Structure of Interest Rates and the Pricing of Fixed Rate Securities
Information
Journal of Financial and Quantitative Analysis , Volume 15 , Issue 4 , November 1980 , pp. 907 - 929
Copyright
Copyright © School of Business Administration, University of Washington 1980

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References

REFERENCES

[1]Black, F., and Scholes, M.. “The Pricing of Options and Corporate Liabilities.” Journal of Political Economy, Vol. 81, Number 3 (05–06 1973), pp. 637–654.CrossRefGoogle Scholar
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[4]Merton, R. “The Theory of Rational Option Pricing.” Bell Journal of Economics and Management Science, Vol. 4, Number 1 (Spring 1973), pp. 141–183.Google Scholar