Perl SWIG and Chinese convertible bonds=

[quantlib-users-admin-2]

> I'm in the process of creating a SWIG perl interface.  =
I was wondering
> if someone is working on anything similar and if anyo=
ne has pointers for
> writing the setup script.
>
> Incidentally, I =
think I've found something interesting with my
> mini-reasearch project=
 with Chinese convertible bonds, which is what got
> me into Quantlib.=0D
=
>
> The standard Western way of modelling CB's is a bond with a call =0D
=
> option.  However, I'm increasingly becoming convinced that one of the =0D
=
> main functions of convertible bonds on Shanghai is to function as a =0D
=
> stock + a put option.  This explains why the conversion price is set =0D
=
> close to the stock price.  As for why someone would want to use a
> c=
onvertible bond as a put option rather than just issuing a put option, =0D
=
> it might have something to do with the fact that it is
> difficult/im=
possible to issue a put option.
>
> This nicely explains why people do=
n't convert the bond immediately when
> the stock price rises above the=
 conversion price.   If you do that you
> lose the value of the put opt=
ion.  By contrast, I suspect that in
> Western CB's, the option value o=
f the CB is unimportant.  The initial
> price of the stock is so much l=
ower than the strike price, that the
> option value of the CB is unimpo=
rtant.  If the stock rises to the point
> where conversion is a possibi=
lity, the bond is likely to be close to its
> expiration date which mea=
ns that the option value of the CB is again
> unimportant.  Furthermore=
, the option value of the bond is probably
> insignficant in comparison=
 with issues involving default.
>
> There are three consequences of th=
is.
>
> 1) this shows how the same principles can be applied different=
ly in
> different markets, and the usefulness of having someone with ar=
ea
> experience to do quant work (hint, hint, I'm looking for a job, hi=
nt,
> hint, nudge, nudge)
>
> 2) there is likely to be a wonderful a=
rbitrage opportunity for someone
> who can trade CB's and A shares in S=
hanghai.  The graphs I've seen which
> compare the values of CB's and A=
 shares are very noisy which means
> overshoot, which means a lot of ar=
bitrage possibilities.
>
> 3) the paper that got me thinking about thi=
s argued that the odd
> behavior was due to inefficient markets.  If th=
is train of thought is
> correct, then it turns out that the Shanghai m=
arket is actually acting
> very efficiently and rationally, which calls=
 into question a lot of the
> other negativity concerning stock trading=
 in Shanghai.
>
> Anyway, I'll trying to put together some working cod=
e to calculate
> this.  The other project that I'm working on is trying=
 to develop a
> quantitative model of the massive stock reform project =
that is going on
> in the PRC right now.
>
> I should point out that=
 the next few years should be a massive
> opportunity for Quantlib in t=
he PRC, as they are finally cleaning up the
> securities system.  Over =
the next year, the National People's Congress
> is scheduled to pass so=
me key legislation which changes the Contract
> Law, the Company Law, a=
nd the Bankruptcy Law to make asset backed
> securities possible.  Righ=
t now the laws make it difficult to transfer
> default rights from one =
person to another and this makes securitization
> of debt largely impos=
sible.
>
> Once you have debt securitization, there is likely to be an=
 explosion in
> the issuance of asset backed securities with a conseque=
ntial explosion
> on risk management derivatives based on asset backed =
securities.  All
> this suddenly thrust into an economy which does not =
have the software
> infrastructure to value these things.  Enter Quantl=
ib.....
>
>
>
>
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