Handbook of Hybrid Instruments

Izzy Nelken is president of Super Computer Consulting, Inc. in Mundelein, Illinois. Super Computer Consulting, Inc. specializes in exotic options, convertible bonds and other complex derivatives. Izzy holds a PhD in computer science from Rutgers University and was on the faculty at the University of Toronto. In addition to his work with Super Computer Consulting, Izzy teaches numerous courses and seminars around the world on a variety of topics including: credit risk management and credit derivatives exotic options, financial engineering, volatility and correlation and hybrid securities. He is also a lecturer in the prestigious mathematics department at the University of Chicago, Izzy's seminars are known for being non-mathematical. Instead they combine cutting edge analytics with real world applications and intuitive examples. Izzy is the editor and co-author of three previous books covering exotic options, option embedded bonds and volatility in the capital markets and is also the sole author of a book on implementing credit derivatives. www.supercc.com

• List of Contributors About the Contributers Introduction 1.1 General 1.2 Importance of Adequate Analysis 1.3 Description of the Chapters 1.4 Summary 1 Hybrid Instruments: Advantages and Disadvantages, Badari S. Ewar 1.1 Introduction 1.2 What is a Convertible Bond? 1.3 The Issuer 1.4 The Investor 1.5 Terminology 1.6 Convertible Instruments 1.7 Summary 2 Convertible Structures: Evolution Continues, T. Anne Coxe 2.1 Convertible Bonds and Preferreds: Hybrid Vigor 2.2 LYONs: A Breed Apart 2.3 TOPrS: Preferreds made Better 2.4 MIPS: Predecessor to TOPrS 2.5 PERCS and Their Relatives 2.6 PRIDES: Equity for Income Lovers 2.7 Variations on a Theme: Product Innovations Abound 2.8 Convertible Glossary 3 The Life Cycle of Convertibles and Warrants, William T. Moore 3.1 Issuance of Warrants and Convertibles 3.2 Calling Convertibles and Warrants 3.3 When should Warrants and Convertibles be Called? 3.4 What Happens to Firm Value when Firm Force Conversion or Exercise? 3.5 Assessing the Value of the Call Provision in Theoretical Models 3.6 References 4 Derivative Data, John Poignand 4.1 Introduction 4.2 Section One: The Convertible Bond and Convertible Preferred 4.3 Section Two: Conversion and Related Data 4.4 Section Three: Calculated Data 5 The Value Line Experience with Convertibles, Lawrence Cavanagh 5.1 Value Line's Convertible Indexes and Market Profiles 5.2 The Performance of Value Line's Recommended Convertibles 5.3 Summary 5.4 Endnotes 6 Hybrid Instruments: A Tax Planning Synopsis, Linda E. Carlisle 6.1 Fundamental Economic Characteristics of the Instruments 6.2 Three Forms of Transaction 6.3 Objectives 6.4 Open Issues 6.5 Conclusions 7 Mandatory Convertible Reset Structures, Colum McCoole 7.1 Introduction 7.2 Origins of the Japanese Bank Reset Market 7.3 Glossary of Key Terms 7.4 Mechanics of the Reset 7.5 Valuing Mandatory Convertible Resets 7.6 Evolving into an Equity Proxy 7.7 Trading Behavior of Mandatory Reset Structures 7.8 Negative gamma Becoming Part of the Vocabulary 7.9 Conclusions 7.10 Appendix 8 Japanese Reset Convertible Bonds and Other Advanced Issues in Convertible Bonds, Izzy Nelken 8.1 Introduction 8.2 The Reset Feature 8.3 Modeling of Reset Convertibles 8.4 Two More Interesting Points to Related to Convertible Securities 9 A Dictionary of Terms Related to Hybrid Instruments, Gary Gastineau and Mark Kritzman Appendix: ConvB CD ROM Installation Guide Index