Valuation and Performance of Convertible Bonds with Hedge Funds

Abstract

Convertible bonds may be regarded as a temporary investment substitute for an equity investment or as a stand-alone investment in their own right. In this article several of the alternative academic pricing models suggested for convertible bond valuation are presented. In addition, the performance of various international convertible bond indices is reviewed, as well as the consistency of the performance of these indices with the factors described in the valuation models. The performance of hedge convertible bond indices for similar time periods and relative to similar factors is also presented.