Posted: 19 May 2006
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 over 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 the model is useful for hedging as, on average, the hedging errors observed are relatively small and mostly unsystematic.
Keywords: mandatory convertibles, hybrid securities, convertible bonds
JEL Classification: G12, G13, G15
Suggested Citation: Suggested Citation
Ammann, Manuel and Seiz, Ralf, Pricing and Hedging Mandatory Convertible Bonds. Journal of Derivatives, Vol. 13, No. 3, pp. 30-46, Spring 2006. Available at SSRN: https://ssrn.com/abstract=903153