Convertible Bond Pricing - SolvencyAnalytics

Convertible bond PricingWorking Paper Series2015-10 (01) 2015 Convertible bond PricingBal azs Mez 2015 Convertible bond investments may have a special role under Solvency II and the SwissSolvency Test as they are favoured over equities due to their convex payoff profile. Es-pecially under Solvency II, replacing equities by an optimized Convertible bond portfoliocan reduce the solvency capital requirement (SCR) significantly while keeping risk/return char-acteristics virtually unchanged. Therefore, we believe that for small and mid size insurancecompanies where constraints on investment volume are less relevant, Solvency II optimizedconvertible bond strategies will be an attractive alternative to formulating such investment strategies Convertible bond Pricing functions have to becorrectly implemented and tested.

bond from an equity and a bond investor’s point of view. However, in real life most convert-ible bonds are American-style that can be exercised at any time during the life of the product and they often exhibit additional features such as contingent conversion, putability and calla-bility, which need to be included in the pricing model.

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  Feature, Bond, Convertible, Bile, Convert, Convertible bonds, Convert ible

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