Exchangeable bond
Exchangeable bond (or XB) is a type of hybrid security consisting of a straight bond and an embedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary or company in which the issuer owns a stake) at some future date and under prescribed conditions.[1] An exchangeable bond is different from a convertible bond. A convertible bond gives the holder the option to convert bond into shares of the issuer.
The pricing of an exchangeable bond is similar to that of convertible bond,[2] splitting it in straight debt part and an embedded option part and valuing the two separately.
Pricing
Price of exchangeable bond = price of straight bond + price of option to exchange
- Price of an exchangeable bond is always higher than the price of a straight bond because the option to exchange adds value to an investor.
- Yield on an exchangeable bond is lower than the yield on a straight bond.
References
External links
- v
- t
- e
Bond market
- Bond
- Debenture
- Fixed income
- Agency bond
- Corporate bond
- Senior debt
- Subordinated debt
- Distressed debt
- Government bond
- Infrastructure bond
- Municipal bond
- Global bond
- Accrual bond
- Auction rate security
- Callable bond
- Commercial paper
- Consol
- Contingent convertible bond
- Convertible bond
- Exchangeable bond
- Extendible bond
- Fixed rate bond
- Floating rate note
- High-yield debt
- Inflation-indexed bond
- Inverse floating rate note
- Lottery bond
- Perpetual bond
- Puttable bond
- Reverse convertible securities
- Zero-coupon bond
- Callable bond
- Convertible bond
- Embedded option
- Exchangeable bond
- Extendible bond
- Puttable bond