Convertible bonds parity

Justifying the Conversion Premium at Issue The first important decision for pricing convertible bonds is to decide the conversion premium above the stock price at issue. The conversion premium at issue determines the conversion price, that is the point in which there is parity relationship between the underlying asset and the convertible bond. In fact bonds are often issued with a premium and the conversion price, also known as the strike price, is the actual price paid for the shares when conversimi occurs. 

In convertible bonds, delta indicates the sensitivity between the convertible bond price and parity. It is given by Equation (9.21) ... 

For example, if an option has a delta of 50%, this means that if the share price or parity increases by one point, the option price or convertible bond price will rise by 0.5 points. 

Eor convertible bonds, rho reflects the sensitivity of convertible bond value to change in interest rates. The value of rho increases when the parity decreases. When the bond is deeply out of the money, the instrument is more sensitive to the change of interests, trading like a straight bond. 

Each connection table format specifies one or more representations for each kind of information that it can contain. A representation is a rigorous system for characterising a particular kind of information. An adequate representation must not be information-deficient with respect to the information that it represents. For example, internal co-ordinates, local chirality, R/S, and bond parity are four different adequate representations of absolute chirality information. Adequate representations can be converted between each other algorithmically. Fortunately,... 

The parity or intrinsic value of a convertible refers to the value of the underlying equity, expressed as a percentage of the nominal value of the bond. Parity is given by equation (13.2). 

For convertible bonds, delta is defined in terms of the sensitivity of the bonds price to changes in its parity. The parity is given from the value of the underlying equity price. The value of this delta can be gauged from FIGURE 13.9, which illustrates parity and bond floor. The delta is seen from the relationship of the parity and note price. 

The procedure for converting substances described as modified stereoparents is based on the use of stereospecific templates, one for each stereoparent. The template will have nomenclature locant numbers and parity descriptors for all stereocentres. The procedure for adding atom/bond specific stereodescriptors to the connection table, in simplified form, consists of the following steps ... 

Investors are concerned with the point at which the ratio of the parity of the bond to the investment value moves far above the bond floor. At this point the security trades more like equity than debt, the equity exposure investment we described earlier. The opposite to this is when the equity price falls to low levels, to the point at which it will need to appreciate by a very large amount before the conversion option has any value at this point, the convertible trades as a yield investment. 

A notation similar to SMILES is Sybyl Line Notation. It provides atom and bond attributes for tetrahedral and cis/trans stereogenic units. Internally, the system uses parities but it can automatically convert CIP (or Fischer) labels to this representation. 

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