I want to price a convertible for less liquid stock with no bonds only this convertible bond. Company has no credit rating neither does competition ).There are not any availaible prices (to back credit spreads). I came down to issue of evaluating credit spread for calculating bond part. I found some Credit Grade model to do that, I do not know how it is possible to use in practice.Convertible is currently deep OTM so Bond part is prevailing.My questions are:1. Is there a way to estimate credit spreads , any practial books or papers on that? 2. Can I use flat credit spread curve in this case ? 3. For 5 year convertible (trading 2 years) should I use 5 year realized volatility ? (there are no implieds)thanks

your questions will be tough if not impossible to answer because there probably is no right answer. Quote1. Is there a way to estimate credit spreads , any practial books or papers on that? I would say no but qualify it somehow. Can you apply a Merton type analysis to come up with a credit spread ? It seems that the company has a relatively simply capital structure (convertible + equity). Quote 2. Can I use flat credit spread curve in this case ? As you dont have any other observable market prices, I would say yes.Quote . For 5 year convertible (trading 2 years) should I use 5 year realized volatility ? (there are no implieds) why not ? I would also look carefully at how easy or otherwise it is to short the stock and how ,uch it would cost to borrow the stock.