| Summary: | 碩士 === 國立高雄第一科技大學 === 財務管理所 === 92 === This paper is the first article to price foreign-currency (or inflation-indexed) convertible bonds and their asset swaps subject to interest rate, equity, exchange rate, and credit risk. We also provide the suitable swap rate for asset swap and prove that the value of a foreign convertible bond is less than (equal to) the value of a synthetic straight bond plus the value of a call option on foreign convertible bond while the foreign convertible bond is (not) embedded with the call or put provisions prior to the maturity date of foreign convertible bond asset swap. In practice, the value of a call option on foreign convertible bond is equal to the value of a foreign convertible bond minus the value of a synthetic straight bond. It is correct only if there is not call or put provisions prior to maturity date of asset swap. From numerical analysis, we also find out the properties of foreign convertible bonds, synthetic straight bonds, call options on foreign convertible bonds, and the swap rates. Taking the foreign convertible bond issued by Tom.com Ltd. as an example, we provide the theoretical values of the five year-to-maturity foreign convertible bond, call option on foreign convertible bond and the appropriate swap rate. The empirical results indicate that the numerical value is closed to the market price. Hence, our pricing model is useful for market practitioners.
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