Convertible price sensitivities delta

Figure 13-9 depicts a graph drawn from the values in Figure 13-6. It shows that when the share price is at low levels relative to the conversion price, the sensitivity of the convertible to movements in the share price is low. However, when the share price is high, this sensitivity (delta) approaches unity, so that a unit move in the price of the share is matched by a unit move in the price of the bond. In the former case, the option is said to be out of the money, while in the latter case, the option is in the money. Where the delta approaches unity, the option is deeply in the money. ...

The most important Greek for convertible bond valuation is the delta. Delta measures the sensitivity of the option price to changes in the price of the underlying share price as follows (Equation 9.19) ... 

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

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. 

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