Using Exchange Options in the Valuation of Convertible Preferred Shares

Abstract

There is a set of corporate situations, when there is an exchange of one asset for another, for example, the offer on an exchange of corporate securities. Special case of such offer is the exchange the preferred share which are available for the company on ordinary share. Application of models estimates of options for an exchange of assets gives to the companies and investors the tool of the fundamental analysis of such situations. In this paper offered the methodology of application of an option for an exchange of assets to an assessment of an exchange of the preferred shares of the company on ordinary.

Keywords: exchange option, preferred share, ordinary share, Margrabe exchange option value model, binomial exchange option valuation model, valuation of convertible preferred shares

JEL Classification: G11, G12, G13, G14, G32