Asset Pricing

CB/EB/BW

CB/EB/BW

  • CB(Convertible Bond)

    A type of debt security that can be converted into a predetermined amount of the underlying company's equity at conversion period during the bond's life

  • EB(Exchangeable Bond)

    A type of hybrid debt security which gives the bondholder the right to convert its debt security into common equity at a predetermined price during conversion period
    (already-issued)

  • BW(Bond with Warrant)

    A bond with a warrant that gives the right but not the obligation to buy a predetermined amount of common equity at a predetermined price

Product Structure
inform of CB, EB, BW
CB EB BW
Bond (Option) Bond (Option) Non- Detachable Bonds (Option)
Warrant
Share conversion rights Share conversion rights to third party company Detachable Bonds (Option)
Detachable Warrant

Comparison

inform of CB·EB, BW Comparison

Pricing the bond sector

Bonds with embedded option pricing
  • BDT(Black-Derman-Toy) Model Applies
  • Create an interest rate binomial tree that fits spot curves on a given date
  • inform of Spot Curve, Binominal Interest rate Trees
  • present value is computed using backwardation from maturity taking into call/put option into consideration
  • inform of Option Exercised(Put), Option NOT Exercised