Are convertible bonds underpriced? : an analysis of the French market
JournalArticle (Originalarbeit in einer wissenschaftlichen Zeitschrift)
ID 67886
Author(s) Ammann, M; Kind, A; Wilde, C
Author(s) at UniBasel Kind, Axel
Year 2003
Title Are convertible bonds underpriced? : an analysis of the French market
Journal Journal of Banking and Finance
Volume 27
Number 4
Pages / Article-Number 635-653
Keywords convertible bonds, pricing, French market, binomial tree, derivatives
Abstract We investigate the pricing of convertible bonds on the French convertible bond market using daily market prices for a period of 18 months. Instead of a firm-value model as used in previous studies, we use a stock-based binomial-tree model with exogenous credit risk that accounts for all important convertible bond specifications and is therefore well suited for pricing convertible bonds. The empirical analysis shows that the theoretical values for the analyzed convertible bonds are on average more than 3% higher than the observed market prices. This result applies to both the standard convertibles and the exchangeable bonds in our sample. The difference between market and model prices is greater for out-of-the-money convertibles than for at- or in-the-money convertibles. A partition of the sample according to maturity indicates that there is a positive relationship between underpricing and maturity with decreasing mispricing for bonds with shorter time to maturity. (C) 2002 Elsevier Science B.V. All rights reserved.
Publisher North-Holland
ISSN/ISBN 0378-4266
Full Text on edoc No
Digital Object Identifier DOI 10.1016/S0378-4266(01)00256-4
ISI-Number WOS:000181808000005
Document type (ISI) Article

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