Free Trial

Safari Books Online is a digital library providing on-demand subscription access to thousands of learning resources.

  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint
Share this Page URL
Help

9. What to Look for in a Convertible > Protected Stock Investing: Most Converti...

Protected Stock Investing: Most Convertibles Should Look Something Like This

Convertible professionals typically use models, whether developed internally or purchased from third-party vendors, that value the securities using a set of assumptions. The most critical, by far, are the issuer’s credit and the volatility of the underlying stock. Most of the other inputs—including the general level of interest rates and the current underlying stock price—are readily observed.

Modeling convertibles is as easy or complex as you choose to make it. As with anything else, the more good work you put into it, the more confident you can be in your output. Having said that, most convertibles tend to fall into one of a fairly small group of profiles, and it’s surprisingly helpful to develop a sense of the “look,” for lack of a better term, of an attractive issue. Part of the reason that bonds tend to gravitate toward fairly consistent “looks” is that the key inputs, credit and volatility, tend to offset each other in the models. Companies with excellent credit—a good thing—also tend to have fairly low stock volatility—a bad thing (at least in the models).


  

You are currently reading a PREVIEW of this book.

                                                                                                                    

Get instant access to over $1 million worth of books and videos.

  

Start a Free 10-Day Trial


  
  • Safari Books Online
  • Create BookmarkCreate Bookmark
  • Create Note or TagCreate Note or Tag
  • PrintPrint