hi.Here's the point : all the recent papers dealing w/ CB pricing refer to the paper by Tsiveriotis & Fernandes [1998], which introduces a system of 2 coupled equations describing the price of the CB for the first one, and, for the second one, the price of a auxiliary asset named "Cash Only part of the CB", whose holder is entitled to all the cash flows of the CB and no equity flow.My problem is the initial equation introduced by them, which is a standard B&S equation, except for the discounting term -rU (where U is the value of the CB) which is replaced by -(r + rc)U, where rc is a credit spread reflecting default risk.Where does this equation come from ? I mean, Merton, B&S established the PDE for any security depending on the asset value S and time t. But how can one introduce the credit spread in the original equations (firm value dynamics, asset value dynamics, ..) in order to have it explicitly in the final TF equation ?any reference would be very usefullrgdsslym

Hi,I think the way to think about it is to remember that for the equity part of the CB to pay off, the company will almost certianly be around. I.E. if the equity part pays off, equity value is above zero, i.e. company is not bankrupt, or the CB is not in default.The cash bit is different in the respect that if the company defaults on the CB (or goes bankrupt) you may not get those cash flows. You can guarantee those cash flows (in theory ... ho humm ...) buy buying a default swap, although the exact mechanics will not be an exact match (hence the ho .. hmm ...). The cost of that default swap is usually Libor + a spread (dependent on how long the bond is, e.g. 5 years say the prices is L+ 200 bps). This 200bps is the rc credit bit.Another way to think about it is the credit spread on a bond issued by say ABC Co. which has a spread to Libor. This spread is the price of the default risk. If ABC Co. is on the verge of default, the spread will be large. One could hedge the ABC Co. CB credit risk, by shorting the ABC vanilla bond.Hope this makes things a bit clearer .... or if I have it wrong .... not confused the issues too much ....All the best, Hobbes.

Hi friends,I need some real time market data on Convertibles.To be specific,about Foreign currency convertible bonds.If any of you have any material or references,kindly inform me ASAP.I am doing a project on long-term financing optins,covering FCCBs and analysing the success stories.Pls do inform me.Thanx a pile

Hellooo,There is no one who can help me with FCCBs?Any research material on corporate bonds listed at Luxembourg and NY stock exchange???Anything on successful corporate bonds raised at these exchanges???I thought there were many traders here...!Please respond with any references or weblinks PLEASSSEEE!!!