Handbook of Hybrid Instruments
Convertible Bonds, Preferred Shares, Lyons, ELKS, DECS and other Mandatory Convertible Notes
Wiley Series in Financial Engineering
1. Edition April 2000
XXII, 236 Pages, Hardcover
Wiley & Sons Ltd
Short Description
Hybrid instruments are bonds or stocks with a fixed-rate of interest or dividend that can be traded on the open stock market for shares. Redemption on the stock market in the form of shares at a price usually significantly higher than the purchase price of the original bond is the hoped-for bonus of hybrids that have made them an attractive instrument for investors and banks alike. Investors view them as sure moneymakers. And both the equity desk and fixed-income desks at a bank can profit from a hybrid. In the first comprehensive technical look at hybrids, Handbook of Hybrid Instruments provides investors with the analytical tools and techniques needed to learn about, and profit from, these fascinating financial instruments.
Hybrid instruments - essentially bonds with an equity component - are found in a multitude of guises. This generic heading encompasses a seemingly endless array of finance instruments, including convertible bonds, mandatory convertibles, reverse convertibles, preferred shares, ELKS, DECS and LYONs, Within each one of these instruments are found a wide range of variations and features. These include reset, negative pledge, screw and forced conversion clauses, as well as step up coupons, call schedules, call options with soft and hard protection, etc,
The range of possibilities can seem bewildering, but it is this very flexibility which proves a huge attraction for investors, issuers and financial institutions. On the sell side companies issue these securities and corporate service departments advise on the type of options to include in them. On the buy side, investment managers seek to build portfolios with limited risk exposure using these securities and hedge funds utilize arbitrage opportunities between the convertible bond and the common share.
The opportunities are endless but the seemingly labyrinthine complexities can prove daunting. The Handbook of Hybrid Instruments helps steer a clear path through the maze. Izzy Nelken has drawn together a team of experts to provide in-depth analysis of many o key issues that both sellers and buyers require in order to operate effectively and profitably.
A general introduction is followed by specific information on key clauses and variations, valuation methods, the impact on a firm's value following the public issuance of convertibles, details on when an issuer should call a convertible and the impact of these provisions on the price, the difficult requirement of input data to make sense of the models, indexes and reset convertibles. Finally, a highly useful glossary is provided of all the key terms used in this field.
An analytical CD is also provided with the book, containing sample software of ConvB++. This combines complex state of the art models with a simple, user-friendly interface to assess fair values prices and to hedge parameters of hybrid instruments.
The Handbook of Hybrid Instruments is an indispensable explanatory and analytical tool for all professionals looking for the latest thinking on convertibles from some of the world's leading experts
About the Contributers
Introduction
1.1 General
1.2 Importance of Adequate Analysis
1.3 Description of the Chapters
1.4 Summary
1 Hybrid Instruments: Advantages and Disadvantages, Badari S. Ewar
1.1 Introduction
1.2 What is a Convertible Bond?
1.3 The Issuer
1.4 The Investor
1.5 Terminology
1.6 Convertible Instruments
1.7 Summary
2 Convertible Structures: Evolution Continues, T. Anne Coxe
2.1 Convertible Bonds and Preferreds: Hybrid Vigor
2.2 LYONs: A Breed Apart
2.3 TOPrS: Preferreds made Better
2.4 MIPS: Predecessor to TOPrS
2.5 PERCS and Their Relatives
2.6 PRIDES: Equity for Income Lovers
2.7 Variations on a Theme: Product Innovations Abound
2.8 Convertible Glossary
3 The Life Cycle of Convertibles and Warrants, William T. Moore
3.1 Issuance of Warrants and Convertibles
3.2 Calling Convertibles and Warrants
3.3 When should Warrants and Convertibles be Called?
3.4 What Happens to Firm Value when Firm Force Conversion or Exercise?
3.5 Assessing the Value of the Call Provision in Theoretical Models
3.6 References
4 Derivative Data, John Poignand
4.1 Introduction
4.2 Section One: The Convertible Bond and Convertible Preferred
4.3 Section Two: Conversion and Related Data
4.4 Section Three: Calculated Data
5 The Value Line Experience with Convertibles, Lawrence Cavanagh
5.1 Value Line's Convertible Indexes and Market Profiles
5.2 The Performance of Value Line's Recommended Convertibles
5.3 Summary
5.4 Endnotes
6 Hybrid Instruments: A Tax Planning Synopsis, Linda E. Carlisle
6.1 Fundamental Economic Characteristics of the Instruments
6.2 Three Forms of Transaction
6.3 Objectives
6.4 Open Issues
6.5 Conclusions
7 Mandatory Convertible Reset Structures, Colum McCoole
7.1 Introduction
7.2 Origins of the Japanese Bank Reset Market
7.3 Glossary of Key Terms
7.4 Mechanics of the Reset
7.5 Valuing Mandatory Convertible Resets
7.6 Evolving into an Equity Proxy
7.7 Trading Behavior of Mandatory Reset Structures
7.8 Negative gamma Becoming Part of the Vocabulary
7.9 Conclusions
7.10 Appendix
8 Japanese Reset Convertible Bonds and Other Advanced Issues in Convertible Bonds, Izzy Nelken
8.1 Introduction
8.2 The Reset Feature
8.3 Modeling of Reset Convertibles
8.4 Two More Interesting Points to Related to Convertible Securities
9 A Dictionary of Terms Related to Hybrid Instruments, Gary Gastineau and Mark Kritzman
Appendix: ConvB CD ROM Installation Guide
Index
