Convertible Bonds: Price Sensitivity

Parity delta and parity gamma are two important sensitivities that investors should be aware of when dealing with convertible bonds. We define both here, and see how the convertible bond behaves for various values of parity delta. An investor in a convertible holds two securities, a straight bond and an embedded call option, and we discuss the valuation of the embedded call option element here. We conclude with a look at the effect of issuer call and investor put options on convertible bond pricing models.