Convertibles I
01.06.2005
Thesis for the School of Law and Economics of Johannes Gutenberg University , Mainz
By Moritz Gölle, Petko Choutov, Ralf-Martin Windolf, June 2005
The objective of this paper is to present and analyze the structure of convertibles and the reasons for the existence of this complex financial product.
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Objective and structure
The objective of this paper is to present and analyze the structure of convertibles and the reasons for the existence of this complex financial product.
The paper begins by focusing on the legal framework and the various configurations of convertibles. Based on these fundamental definitions, the paper then looks at the price behavior of convertibles over their lifespan, which is determined by the underlying stock.
In order to highlight the positive and negative characteristics of convertibles, the paper then presents the advantages and disadvantages from the viewpoint of investors and issuers as well as from the perspective of existing shareholders.
The paper concludes with a close examination and discussion of the various valuation approaches, especially the Brennan/Schwartz model.