Convertible Bonds: Pricing Factors

When pricing convertible bonds we must take it into account that they have both fixed income and equity components. We discuss the main price determinants of convertibles; the underlying stock price, the maturity of the convertible, the level of interest rates, and the volatility. The value of a convertible is also influenced by the bond provisions, such as investor call protection and investor put option, and other factors including dividend yield, credit rating, and liquidity. We look at all of these factors affecting convertible bond price here.