1. THE VALUATION OF CONVERTIBLE BONDS.
- Author
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WALTER, JAMES E. and QUE, AGUSTIN V.
- Subjects
CONVERTIBLE bonds ,BOND prices ,CONVERTIBLE securities ,VALUATION ,BONDS (Finance) ,RATE of return - Abstract
The article discusses the evaluation of convertible bonds. Two aspects in particular are analyzed--the effect of the "bond floor" on risk premiums, and how unpredictable and involuntary termination of convertibles affects their range of possible returns. The authors describe the market model for valuing convertible securities, note its shortcomings, and then introduce a simulation method for valuation that employs Monte Carlo methods. Among their findings is that conventional methods overstate the bond floor's contribution to value.
- Published
- 1973
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