This is a complete guide to the pricing and risk management of convertible bond portfolios. Convertible bonds can be complex because they have both equity and debt like features and new market entrants will usually find that they have either a knowledge of fixed income mathematics or of equity derivatives and therefore have no idea how to incorporate credit and equity together into their existing pricing tools. Part I of the book covers the impact that the 2008 credit crunch has had on the markets, it then shows how to build up a convertible bond and introduces the reader to the traditional convertible vocabulary of yield to put, premium, conversion ratio, delta, gamma, vega and parity. The market of stock borrowing and lending will also be covered in detail. Using an intuitive approach based on the Jensen inequality, the authors will also show the advantages of using a hybrid to add value - pre 2008, many investors labelled convertible bonds as 'investing with no downside', there are of course plenty of 2008 examples to prove that they were wrong. The authors then go onto give a complete explanation of the different features that can be embedded in convertible bond. Part II shows readers how to price convertibles. It covers the different parameters used in valuation models: credit spreads, volatility, interest rates and borrow fees and Maturity. Part III covers investment strategies for equity, fixed income and hedge fund investors and includes dynamic hedging and convertible arbitrage. Part IV explains the all important risk management part of the process in detail. This is a highly practical book, all products priced are real world examples and numerical examples are not limited to hypothetical convertibles. It is a must read for anyone wanting to safely get into this highly liquid, high return market.

First published in 2001. The revision of this important work contains all new data on the long-overlooked convertible securities market. It offers invaluable information on the analytical as well as the statistical tools which investors need to add quality to their investment portfolios. Topics include: * Convertible securities as an asset class and as an alternative investment * Market capitalization of convertible securities * An overview of the equity warrant market * Special provisions in the warrant markets * Finding undervalued warrants * Convertible bond hedging strategies * Portfolio management.

Introducing a revolutionary new quantitative approach to hybrid securities valuation and risk management To an equity trader they are shares. For the trader at the fixed income desk, they are bonds (after all, they pay coupons, so what's the problem?). They are hybrid securities. Neither equity nor debt, they possess characteristics of both, and carry unique risks that cannot be ignored, but are often woefully misunderstood. The first and only book of its kind, The Handbook of Hybrid Securities dispels the many myths and misconceptions about hybrid securities and arms you with a quantitative, practical approach to dealing with them from a valuation and risk management point of view. Describes a unique, quantitative approach to hybrid valuation and risk management that uses new structural and multi-factor models Provides strategies for the full range of hybrid asset classes, including convertible bonds, preferreds, trust preferreds, contingent convertibles, bonds labeled "additional Tier 1," and more Offers an expert review of current regulatory climate regarding hybrids, globally, and explores likely political developments and their potential impact on the hybrid market The most up-to-date, in-depth book on the subject, this is a valuable working resource for traders, analysts and risk managers, and a indispensable reference for regulators

An investor's guide to understanding and using financial instruments The Handbook of Financial Instruments provides comprehensive coverage of a broad range of financial instruments, including equities, bonds (asset-backed and mortgage-backed securities), derivatives (equity and fixed income), insurance investment products, mutual funds, alternative investments (hedge funds and private equity), and exchange traded funds. The Handbook of Financial Instruments explores the basic features of each instrument introduced, explains their risk characteristics, and examines the markets in which they trade. Written by experts in their respective fields, this book arms individual investors and institutional investors alike with the knowledge to choose and effectively use any financial instrument available in the market today. John Wiley & Sons, Inc. is proud to be the publisher of the esteemed Frank J. Fabozzi Series. Comprising nearly 100 titles-which include numerous bestsellers—The Frank J. Fabozzi Series is a key resource for finance professionals and academics, strategists and students, and investors. The series is overseen by its eponymous editor, whose expert instruction and presentation of new ideas have been at the forefront of financial publishing for over twenty years. His successful career has provided him with the knowledge, insight, and advice that has led to this comprehensive series. Frank J. Fabozzi, PhD, CFA, CPA, is Editor of the Journal of Portfolio Management, which is read by thousands of institutional investors, as well as editor or author of over 100 books on finance for the professional and academic markets. Currently, Dr. Fabozzi is an adjunct Professor of Finance at Yale University's School of Management and on the board of directors of the Guardian Life family of funds and the Black Rock complex of funds.

An indispensable tool to steer readers thought the complex maze of hybrid instruments! Hybrid instruments - essentially bonds with an equity component - are found in a multitude of guises. This generic heading encompasses a seemingly endless array of financial instruments, including convertible bonds, mandatory convertibles, reverse convertibles, preferred shares, ELKS, DECS and Lyons. Within each one of these instruments are found a wide range of variations and features. These include reset, negative pledge, screw and forced conversion clauses, as well as step up coupons, call schedules, call options with soft and hard protection etc. The range of possibilities can seem bewildering, but it is this very flexibility which proves a huge attraction for investors, issuers and financial institutions. On the sell side companies issue these securities and corporate service departments advise on the type of options to include in them. On the buy side, investment managers seek to build portfolios with limited risk exposure using these securities and hedge funds utilise arbitrage opportunities between the convertible bond and the common share. The opportunities are endless but the seemingly labyrinthine complexities can prove daunting. The Handbook of Hybrid Instruments helps steer a clear path through the maze. Izzy Nelken has drawn together a team of experts to provide in-depth analysis of many of the key issues that both sellers and buyers require in order to operate effectively and profitably. A general introduction is followed by specific information on key clauses and variations, valuation methods, the impact on a firm's value following the public issuance of convertibles, details on when an issuer should call a convertible and the impact of these provisions on the price, the difficult requirement of input data to make sense of the models, indexes and reset convertibles. Finally, a highly useful glossary is provided of all the key terms used in this field. An analytical CD is also provided with the book, containing sample software of ConvB++. ConvB++ combines complex state of the art models with a simple, user friendly interface to assess fair values prices and to hedge parameters of hybrid instruments. The Handbook of Hybrid Instruments is an indispensable explanatory and analytical tool for all professionals looking for the latest thinking on convertibles from some of the world's leading experts.

From The Handbook of Fixed Income Securities--the most authoritative, widely read reference in the global fixed income marketplace--comes this sample chapter. This comprehensive survey of current knowledge features contributions from leading academics and practitioners and is not equaled by any other single sourcebook. Now, the thoroughly revised and updated seventh edition gives you the facts and formulas you need to compete in today's transformed marketplace. It places increased emphasis on applications, electronic trading, and global portfolio management.

Introducing a revolutionary new quantitative approach to hybrid securities valuation and risk management To an equity trader they are shares. For the trader at the fixed income desk, they are bonds (after all, they pay coupons, so what's the problem?). They are hybrid securities. Neither equity nor debt, they possess characteristics of both, and carry unique risks that cannot be ignored, but are often woefully misunderstood. The first and only book of its kind, The Handbook of Hybrid Securities dispels the many myths and misconceptions about hybrid securities and arms you with a quantitative, practical approach to dealing with them from a valuation and risk management point of view. Describes a unique, quantitative approach to hybrid valuation and risk management that uses new structural and multi-factor models Provides strategies for the full range of hybrid asset classes, including convertible bonds, preferreds, trust preferreds, contingent convertibles, bonds labeled "additional Tier 1," and more Offers an expert review of current regulatory climate regarding hybrids, globally, and explores likely political developments and their potential impact on the hybrid market The most up-to-date, in-depth book on the subject, this is a valuable working resource for traders, analysts and risk managers, and a indispensable reference for regulators

This book provides an overview of the risk components of CoCo bonds. CoCos are hybrid financial instruments that convert into equity or suffer a write-down of the face value upon the appearance of a trigger event. The loss-absorption mechanism is automatically enforced either via the breaching of a particular accounting ratio, typically in terms of the Common Equity Tier 1 (CET1) ratio, or via a regulatory trigger. CoCos are non-standardised instruments with different loss-absorption and trigger mechanisms. They might also contain additional features such as the cancellation of coupon payments. Different pricing models are discussed in detail. These models use market data such as share prices, CDS levels and implied volatility in order to calculate the theoretical price of a CoCo bond and its sensitivities, providing the investor with insides to hedge from adverse changes in the market conditions. The audience are professionals as well as academics who want to learn how to risk manage CoCo bonds using cutting edge techniques as well as all the risk involved in CoCo bonds.

This book is a comprehensive guide to the new generation of hybrid securities: subordinated and perpetual bonds with deferrable coupon first issued around 2003, and the youngest member of the hybrids family named CoCos (contingent convertibles) being a product of Basel III or European Union CRD IV regime (2014). Contingent capital constitutes a contractual recapitalization mechanism for troubled financial institutions. An increasing number of European banks have issued CoCo bonds in order to bolster their capital ratios. Following the EU pattern, CoCos issues have become increasingly popular within banks in Asia and the Pacific. The EU regulatory treatment of the contingent convertibles issued by banks and insurers together with bank bail-in instruments is at the forefront of the book. Furthermore, the book provides an overview of hybrids pricing and risk assessment approach and covers the non-voting preferred stocks as another hybrids class.

Rev. ed. of: Corporate finance: theory and practice / Pierre Vernimmen. 2005.