Are Convertible Bonds Underpriced?: An Analysis of the French Market

St. Gallen Economics Discussion Paper No. 2001-02

Journal of Banking and Finance, 2003

28 Pages Posted: 17 May 2001

See all articles by Manuel Ammann

Manuel Ammann

University of St. Gallen - School of Finance

Axel H. Kind

University of Konstanz

Christian Wilde

Goethe University Frankfurt - Department of Finance

Date Written: September 2001

Abstract

We investigate the pricing performance of three convertible bond pricing models on the French convertible bond market using daily market prices. We examine a component model separating the convertible bond into a bond and option component, a method based on the Margrabe model for pricing exchange options, and a binomial-tree model with exogenous credit risk. All three models are found to deliver theoretical values for the analyzed convertible bonds that tend to be higher than the observed market prices. The prices obtained by the binomial-tree model are nearest to market prices and the mispricing is no longer statistically significant for the majority of bonds in our sample. For all models, the difference between market and model prices is greater for out-of-the money convertibles than for at- or in-the-money convertibles.

Keywords: Convertible bonds, pricing, French market, binomial tree, derivatives

undefined

JEL Classification: G13, G15

Suggested Citation

Ammann, Manuel and Kind, Axel H. and Wilde, Christian, Are Convertible Bonds Underpriced?: An Analysis of the French Market (September 2001). St. Gallen Economics Discussion Paper No. 2001-02, Journal of Banking and Finance, 2003, Available at SSRN: https://ssrn.com/abstract=268470 or http://dx.doi.org/10.2139/ssrn.268470

Manuel Ammann (Contact Author)

University of St. Gallen - School of Finance ( email )

Unterer Graben 21
St.Gallen, CH-9000
Switzerland

Axel H. Kind

University of Konstanz

Universitätsstraße 10
Konstanz, D-78457
Germany

Christian Wilde

Goethe University Frankfurt - Department of Finance ( email )

House of Finance
Grueneburgplatz 1
Frankfurt am Main, Hessen 60323
Germany

0 References

    0 Citations

      Do you have a job opening that you would like to promote on SSRN?

      Paper statistics

      Downloads
      1,553
      Abstract Views
      13,047
      Rank
      25,256
      PlumX Metrics
      Plum Print visual indicator of research metrics
      • Citations
        • Citation Indexes: 8
      • Usage
        • Abstract Views: 13003
        • Downloads: 1551
      • Captures
        • Readers: 7
        • Exports-Saves: 4
      see details