Abstract
Convertible bond, a hybrid instrument that offers the holders both fixed income of straight debt and capital gain of equity via attachment of the right to convert to common shares of issuing companies, has recently been issued in mass by important Vietnamese banks and groups. To account for this growing trend, this paper aims to help market participants to gain more insight on the products as well as the possible methods of pricing. The authors first describe the characteristics and risks of convertible bond in general and callable convertible bond in particular. Secondly, due to the fact that Vietnam convertible market is very much it its early stage, analytical tools are vital to assist participants in the estimation of fair value for the bonds. Therefore, the authors propose the use of three approaches with varying degree of difficulty, efficiency, etc. to price a typical callable convertible bond, together with the case application of a famous Vietnamese enterprise, Vincom Joint Stock Company. They are Lattice models including Binomial Tree and Trinomial Tree, Black-Scholes based Component model and Monte Carlo simulation.
Published Version
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