Valuation models

Convertible bonds

Share tree with the cash and share parts discounted separately, parity, bond floor, conversion premium, implied credit spread, share delta, vega and CS01.

Inputs

CurrencyFace valueMaturityyCoupon%FrequencyConversion given asConversion priceShare priceDividend yield%Share volatility%PricedCredit spreadbpCurveCurve: flat rate% cc

Issuer calls, one per line: date clean priceHolder puts, one per line: date clean price

Results

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Methodology

Conventions

Cox-Ross-Rubinstein tree on the shares, odd and even step counts averaged.
Tsiveriotis-Fernandes: the share part discounted at the rate, the cash part at the rate plus the credit spread.

References

Tsiveriotis and Fernandes (1998)
Hull, Options, Futures, and Other Derivatives, ch. 26

Formulas

Node: V = max(m S, put, min(hold, max(call, m S)))
Parity: m S, m shares per 100 of face
Cash part: C = e^(−(r+s)Δt) E[C'] + coupon