A convertible security is a security that can be converted into another security. Convertible securities may be convertible bonds or preferred stocks that pay regular interest and can be converted into shares of common stock (sometimes conditioned on the stock price appreciating to a predetermined level). Other convertible securities are asset-linked bonds, asset-linked notes, and bonds with asset warrants. Although bond with asset warrant is a type of convertible securities, regular Warrants are not. Regular warrant is a type of equity option that gives the owner the option to buy newly issued shares at a determined exercise price and date. Equity capital notes are similar to warrants, except that there is no exercise price.
Types of convertible securities in the market are:
- Convertible bond
- Reverse convertible bond
- Convertible preferred stock
- Asset-linked bond
- Asset-linked note
- Bond with asset warrant
- Xiao, Tim (2013). "A simple and precise method for pricing convertible bond with credit risk", Journal of Derivatives & Hedge Funds, 19 (4), 259-277.
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