IDEAS home Printed from https://ideas.repec.org/a/sbr/abstra/v54y2002i4p302-334.html
   My bibliography  Save this article

Valuation Of Convertible Bonds With Sequential Conversion

Author

Listed:
  • Wolfgang Bühler
  • Christian Koziol

Abstract

In this paper, we characterize optimal conversion strategies and the related values of convertible bonds and stocks under a sequential conversion policy. Contrary to the existing literature, we consider firms that have both subordinated debt outstanding and convertible bonds. The additional debt results in wealth transfers among the holders of stock, convertible bonds, and additional debt, depending on the conversion strategy. These wealth transfers lead to remarkable differences in the optimal conversion policy and for the values of convertible bonds and stocks. It is possible that only a fraction of outstanding convertibles are converted at the last conversion date, that the stock value is partly strictly decreasing in the firm value, and partly decreasing in the dividend payment. It is also possible that certain stock values cannot occur when block conversion takes place, and that the value of a block-convertible bond is below and never above the corresponding value of a convertible bond under unresticted conversion.

Suggested Citation

  • Wolfgang Bühler & Christian Koziol, 2002. "Valuation Of Convertible Bonds With Sequential Conversion," Schmalenbach Business Review (sbr), LMU Munich School of Management, vol. 54(4), pages 302-334, October.
  • Handle: RePEc:sbr:abstra:v:54:y:2002:i:4:p:302-334
    as

    Download full text from publisher

    File URL: http://www.vhb.de/sbr/pdfarchive.html
    Download Restriction: no

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Pascal François & Georges Hubner & Nicolas Papageorgiou, 2009. "A Dynamic Model of Risk-Shifting Incentives with Convertible Debt," Cahiers de recherche 0930, CIRPEE.
    2. Ammann, Manuel & Kind, Axel & Wilde, Christian, 2008. "Simulation-based pricing of convertible bonds," Journal of Empirical Finance, Elsevier, vol. 15(2), pages 310-331, March.
    3. Nikunj Kapadia & Gregory Willette, 2012. "Equilibrium exercise of European warrants," Review of Derivatives Research, Springer, vol. 15(2), pages 129-156, July.

    More about this item

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:sbr:abstra:v:54:y:2002:i:4:p:302-334. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (sbr). General contact details of provider: http://edirc.repec.org/data/fbmunde.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.