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Pricing Convertible Bonds Hardcover – October 1, 1998


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Product Details

  • Hardcover: 268 pages
  • Publisher: Wiley; 1 edition (October 1, 1998)
  • Language: English
  • ISBN-10: 0471978728
  • ISBN-13: 978-0471978725
  • Product Dimensions: 6.2 x 0.9 x 9.4 inches
  • Shipping Weight: 1.2 pounds (View shipping rates and policies)
  • Average Customer Review: 3.8 out of 5 stars  See all reviews (12 customer reviews)
  • Amazon Best Sellers Rank: #1,178,982 in Books (See Top 100 in Books)

Editorial Reviews

From the Inside Flap

Convertible bonds are a hybrid of bond and equity. Like a bond, they provide the holder with an income, although this is lower than on a conventional bond because the holder also has the right to buy the issuer?s shares at a predetermined price during the life of the bond. These instruments now appeal to a much wider range of investors. There are few works on the subject of pricing convertible bonds. Most books discussing derivative products cover all details of pricing futures and options in minute detail. Convertible bonds and warrants are usually mentioned as an after thought in the latter chapters. This is the first book to address the very complex issue of pricing convertible bonds.

From the Back Cover

The Convertible Bonds (CB) market is growing all the time. To date, over one trillion dollars worth of CBs are in circulation. Corporations are finding this source of fund-raising more and more attractive. And for different reasons, the buyers are finding CBs increasingly attractive investment vehicles. Kevin Connolly has put together an excellent treatment of pricing convertible bonds, some of the chapters are:
  • Returns distributions and associated descriptive statistics
  • Modelling the share price process
  • The basic convertible bond model
  • Introducing the complications
  • Convertible bond sensitivities
  • Using equity warrent models to price CBs
  • Refix clauses
Fund managers, hedge players/traders, undergraduates and post-graduates will all find this book invaluable. Easy to understand software based on Microsoft Excel spreadsheets is also supplied.

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Customer Reviews

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Most Helpful Customer Reviews

15 of 16 people found the following review helpful By S. Schneider on August 18, 2000
Format: Hardcover Verified Purchase
Once the individual investor begins to grasp the complexity of convertible bonds, it beats me as to why he or she would not be inclined to give up the entire enterprise altogether. And this book is so chock full of a convertible maven's essential vitamins and minerals that, after the first reading at least, this investment arena will seem utterly Pyrrhic to a neophyte. Sadly, the book is dense enough that a newcomer is likely to miss its nimble, understated handling of a maddeningly complex topic. It is only after perusing the other available literature on convertibles that Kevin Connolly's competent, intelligent handling dawns on you. Then you see this text as a high-end stereo system amongst crude boom boxes!
Although Connolly writes under the pretext the reader knows next to nothing about the convertible, or even senior debt and common equity instruments, the book may not be the optimal starting point to understand convertibles. For the American reader, there is also the matter that the examples are in pounds sterling, and not in dollars.
But the text provides a terrific point-of-entry for the investor who is left wanting by crude convertible pricing models which fail to adequately account for subtler, but critical, details such as embedded long-put options, refix clauses, and what one ought to do with probability issues. The implicit theme of the book is "every convertible is a different animal...accept it and get nimble enough to competently deal with the instrument's intricacies." The reader is well served --with the theme, the non-condescending explanation, and the tools Connolly offers to deal competently and confidently with convertible complexities.
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12 of 12 people found the following review helpful By chris.shortland@monis.co.uk on June 4, 1999
Format: Hardcover
If you are a beginner to the area then this book could be of some use to you. However, for the more experienced practitioner it is limited in its usefulness. The phrase "beyond the scope of this book" becomes too repetitive whenever the interesting and challenging topics are mentioned. And it is precisely these modeling areas that differentiate the convertible bond from the more trivial option pricing problems that are covered well in other books. This lack of detail in the meatier areas is the biggest disappointment of the book. Generally it is well written and presents the issues clearly - just not enough of the issues that really matter.
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9 of 10 people found the following review helpful By Bachelier on August 15, 2001
Format: Hardcover Verified Purchase
Connolly has written a useful, practical book for those who are attempting to price these (increasingly) complex instruments. For more abstract or academic treatments of the topic, seek other sources and the innumerable academic journals of quant finance. But for a nut-work �gotta-price-this-bugger-�cause-my-boss-asked-me-to-and-I�m-the-quant-guy-in-the-shop� this guide, while not strictly a �cookbook,� is indispensable. Although it begins at a relatively basic level, it clearly and concisely explains every technique from the simple (y = mx + b) and then step-by-step ratchets up to the Excel-samuri level (MIN and MAX tests after multiple operations of option pricing trees (bi-nomial and tri-nomial)).
I limited my rating to four stars, however, because Connolly only mentions in passing the available (expensive) software-house products that do many of the same things his example spreadsheets do. Fin software needs critics, and I can think of no one better placed than the author to examine them and give front-line quant analysts his views.
In addition, like most worker bees, I try never to reinvent the wheel (programming in C++ and VB or anything else for this kinda thing is undiluted soul-destroying tedium), but at the same time want to thoroughly check out the foundational theory and techniques someone applied before I risk my career on someone else�s work. In this case, a good list of the academic sources and current financial literature on the topic would have been a useful and welcome addition to this slender volume.
I suppose a final criticism is that we have all seen the exponential growth of credit derivatives in the past few years. Connolly�s next edition will need to address the topic of credit derivatives in relation to convertible bonds, as their use in combination with CBs provides alternate hedging, investment, and speculative strategies not explicitly considered in this book.
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6 of 7 people found the following review helpful By GP West FMA on November 9, 2003
Format: Hardcover
It's amazing that nobody has written a decent book on convertible bonds. This is the best in a very weak selection.
The book essentially starts at Chapter 6. If he wanted to write a book on modelling in excel he should have thougt about doing it before Jackson and Staunton (Modelling in Excel and vba). However, there isn't any vba here. How another reviewer can say that the pace accelerates enough to keep the attention of the expert is crazy, Chapters 1-5 are very irritating; as I say, they might be fine in another book.
The author's avoidance of vba is a drawback. Why not? It is a logical thing to do.
In the last couple of chapters, the author stops doing excel and just shows the graphs. He even freely refers to a embeded tree spreadsheet and then nonchalently points out that it isn't on the disk provided. Why not?
The real reason is that the binomial method becomes completely unworkable as soon as one introduces complications. One needs to use finite difference methods. FDMs are not even mentioned in this book. The author places his presentation as the state of the art, it isn't. I learned more in 4 pages of one of Wilmott's books (Mr. Numerical DE Solver) [Paul WIlmott on Quantitative Finance, section on convertible bonds] than I did from this book.
If you are interested in building models of convertibles, that can take into account any but the most vanilla features, this is not the place. For a conceptual non-quantitative overview, fine.
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