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The major difference is that the equity option embedded in a convertible bond is not detachable from the convert, so that you have to value the bond and the embedded option together. If you want to make a direct comparison with a detachable warrant, you can think of the the embedded option in a convertible bond as having a strike price equal to the value of ...

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Tangurena's answer and links give the right idea. You can get a rough approximation by finding the conversion price $K$ and using that $K$ as the strike in a standard Black-Scholes option pricer. In practice, most people work with 3rd party models such as the ones built into Bloomberg, Monis, or Kynex.

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I can't answer your question about the data, since my sources for data like that are Reuters and Bloomberg, neither of which are cheap. For testing trading strategies, I'll separate them into three camps. For 'simple' optimization schemes, RMetrics fPortfolio can likely do the trick. This would be for weight-based asset allocation. RMetrics also has some ...

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Use the USD rate. The actual tricky bit is in the volatility. Normally for a cross currency bond you would use the volatility of the foreign shares as denominated in US currency. However, the fixed FX rate in this case means that the correct volatility to use is the volatility in INR.

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The answer is, that it does not matter. Choose one currency as the numeraire, and stick to it. This is because of the foreign exchange interest rate carry arbitrage relationship. If that relationship doesn't hold, skip the bond and lock-in the arbitrage on the interest rate differential embedded in the USD/INR exchange rate.

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Both statements are correct. A warrant allows a holder to BUY a stock at a set price. Because there is a specific price, all that is needed is CASH to get the stock. As such, the warrant can be separated from the bond, and someone else could use it. As a result, it is valued separately from an accounting perspective. A convertible bond, on the other hand, ...

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A friend gave me the following reply in terms of dynamic hedging and portfolio management: Quantitative justification Pricing models for a CB are based on holding the CB hedged with a short equity position. The combined portfolio has zero delta. However, it has positive gamma. To see this, consider that delta increases when the probability of conversion ...

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That company is probably traded on the Hungarian stock exchange in Hungarian forint. You would have to multiply the stock price by the euro/forint rate to find parity. Note that in this case, the bond has a huge coupon (Euribor+5.5%) after the "call date", effectively forcing the call and making the bond a 4% maturing in 2016. There's no real point to ...

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The parity in this picture is given as the percentage of the face value. The stock price is given in HUF. I checked the stock price, It reached 16600 in september 2013. The EURHUF that time was something like 299, but we should now the exact time this picture was taken. So we have everything to calculate the parity: \$\text{Parity} = \text{Conv Ratio} \cdot ...

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The above gives you the value of the option in the convertible bond. Next step, look at the price of an exchange-traded option to see what the embedded convertible bond option is worth. That can tell you if the convertible bond is over or under priced - compare the market value of the option to the implied price of the option (scaling prices to the same ...

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You are mixing terms here. The definition of an "interest rate" is typically a simple interest rate as applies to the Principal of a loan. The unpaid interest rate is not compounded. This is owed at the conclusion of the loan or when converted to debt. Typically rolled into the equity stake. The definition of "discount" is what the convertible debt holder ...

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If there is no chance of default, and you have an extremely simple set of terms and conditions (T&C) on the bond, then the two are equivalent. In the real world T&C are complex for all bonds currently traded, and default is important. Therefore something closer to the binomial model, which allows the embedded option to disappear in the event of ...

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Andrew Lo has an analysis documenting the performance of Convertible Bond strategies (see page 13 here). His purpose is to see whether various hedge fund strategies can be replicated by a portfolio of tradeable risk assets. His sample period his 1986-2005.

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