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CONTRIBUTORS:
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JOURNAL:
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YEAR:
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2006
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PUB TYPE:
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Journal Article
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SUBJECT(S):
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Convertible bonds, mandatory, valuation, hedging
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DISCIPLINE:
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No discipline assigned
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HTTP:
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http://www.manuel-ammann.com
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LANGUAGE:
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None
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PUB ID:
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103-436-732
(Last edited on
2007/07/30 09:28:15 GMT-6)
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SPONSOR(S):
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ABSTRACT:
This article examines the pricing and hedging of mandatory convertible bonds on the US. market using daily market prices for a period of 498 trading days, resulting in a sample of more than 14,600 daily price observations. We explore the pricing and hedging performance based on a simple contingent claims model. On average, the pricing errors are lower than those found for standard convertible bonds. An analysis of the hedging performance of the model indicates that it is useful for hedging as, on average, the hedging errors observed are relatively small and mostly not systematic.
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