Valuation of Convertible Bonds when Investors Act Strategically

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März 2004



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.


Convertible bonds: markets, motives, and traditional valuation

General framework for the analysis of convertible bonds

Optimal conversion strategies and valuation of convertible bonds at and before maturity

Comparison of the results of three conversion variants

Optimal conversion strategies and valuation of convertible bonds in a multiperiod framework


:Dr. Christian Koziol ist wissenschaftlicher Assistent bei Prof. Dr. Dr. h.c. Wolfgang Bühler am Lehrstuhl für Finanzierung der Universität Mannheim.

EAN: 9783824491322
ISBN: 382449132X
Untertitel: Diss. With a Forew. by Wolfgang Bühler. 'Beiträge zur betriebswirtschaftlichen Forschung'. Softcover reprint of the original 1st ed. 2004. 43 Abbildungen, 1 Tabellen. Sprache: Englisch.
Verlag: Deutscher Universitätsvlg
Erscheinungsdatum: März 2004
Seitenanzahl: XVII
Format: kartoniert
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