Floating Convertible Bonds

[John Maiden]

Trying to work with the floating convertible bonds class
and have a few questions:

1. Has anyone worked with this before successfully?
2. Are there any caveats I should consider when constructing
the floating convertible bond in QuantLib? Or even just a
floating bond?

Given that these are broad questions, let me present a simple question.

If I have a yield curve, and I know how the coupon is calculated
(e.g. 50 points above Libor), how would I use this? Would I just
add 50 points to the YieldTermStructure that I input into the IborIndex?
Also, if I'm evaluating the convertible bond on a weekly schedule,
would I use Weekly as the tenor in the IborIndex?

Once I get through this then I have to tackle how floating
affects any calls or puts on the convertible bond.

Finally, what is with this "Lines Longer Than 80 characters"
warning I get when I post on gmane? It's really annoying.


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[Luigi Ballabio]

On Fri, 2007-10-26 at 18:58 +0000, John Maiden wrote:

> Trying to work with the floating convertible bonds class
> and have a few questions:
>
> 1. Has anyone worked with this before successfully?
> 2. Are there any caveats I should consider when constructing
> the floating convertible bond in QuantLib? Or even just a
> floating bond?
>
> Given that these are broad questions, let me present a simple question.
>
> If I have a yield curve, and I know how the coupon is calculated
> (e.g. 50 points above Libor), how would I use this? Would I just
> add 50 points to the YieldTermStructure that I input into the IborIndex?

No, I think you'll have to pass 50 points in the 'spreads' argument of
the floating-convertible constructor.

> Also, if I'm evaluating the convertible bond on a weekly schedule,

I'm afraid I don't really get what "evaluating on a weekly schedule"
means...

> would I use Weekly as the tenor in the IborIndex?

It depends on what the bond pays. The tenor in the IborIndex should be
the tenor of the Libor whose fixings (plus spread) are paid.

Luigi


--

Humphrey's Requirements Uncertainty Principle:
For a new software system, the requirements will not be
completely known until after the users have used it.



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