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Valuation of Convertible Bonds when Investors Act Strategically

  • Authors
  • Christian Koziol

Part of the Beiträge zur betriebswirtschaftlichen Forschung book series (BBFDUV, volume 110)

Table of contents

About this book

Introduction

Convertible bonds are interest bearing securities that can be converted into stocks. Therefore, the investors' strategy is a fundamental pricing factor. It is particularly important whether a firm has debt outstanding in addition to convertible bonds and stocks, because the conversion decision results in a wealth transfer between debt and stock holders.

Christian Koziol analyzes conversion strategies and the related values of stocks and convertible bonds when firms have additional debt outstanding. For this purpose, he applies a multi period framework in the presence of both firm value and interest rate uncertainty. He shows that various conversion strategies can be optimal, which result in different values for stocks and convertible bonds, depending on the underlying conversion variant, i.e. monopolistic conversion, perfect competition, or block conversion. A comparative static analysis examines the differences between the properties of the optimal conversion strategies and between the asset values for the three conversion variants. One of the - partly surprising - results is that the convertible bond value is highest under monopolist conversion and that the value under block conversion is lower than under perfect competition.

Keywords

Aktienbesitzer Convertible Bonds Strategic Conversion corporate finance option pricing valuation

Bibliographic information

  • DOI https://doi.org/10.1007/978-3-322-82016-7
  • Copyright Information Gabler Verlag | Springer Fachmedien Wiesbaden GmbH, Wiesbaden 2004
  • Publisher Name Deutscher Universitätsverlag
  • eBook Packages Springer Book Archive
  • Print ISBN 978-3-8244-9132-2
  • Online ISBN 978-3-322-82016-7
  • Buy this book on publisher's site