The handbook of convertible bonds : pricing, strategies and risk management

This is a complete guide to the pricing and risk management ofconvertible bond portfolios. Convertible bonds can be complexbecause they have both equity and debt like features and new marketentrants will usually find that they have either a knowledge offixed income mathematics or of equity derivatives and thereforehave no idea how to incorporate credit and equity together intotheir existing pricing tools.
Part I of the book covers the impact that the 2008 credit crunchhas had on the markets, it then shows how to build up a convertiblebond and introduces the reader to the traditional convertiblevocabulary of yield to put, premium, conversion ratio, delta,gamma, vega and parity. The market of stock borrowing and lendingwill also be covered in detail. Using an intuitive approach basedon the Jensen inequality, the authors will also show the advantagesof using a hybrid to add value - pre 2008, many investors labelledconvertible bonds as 'investing with no downside', there are ofcourse plenty of 2008 examples to prove that they were wrong. Theauthors then go onto give a complete explanation of the differentfeatures that can be embedded in convertible bond.
Part II shows readers how to price convertibles. It covers thedifferent parameters used in valuation models: credit spreads,volatility, interest rates and borrow fees and Maturity.
Part III covers investment strategies for equity, fixed incomeand hedge fund investors and includes dynamic hedging andconvertible arbitrage.
Part IV explains the all important risk management part of theprocess in detail.
This is a highly practical book, all products priced are realworld examples and numerical examples are not limited tohypothetical convertibles. It is a must read for anyone wanting tosafely get into this highly liquid, high return market.