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Description

Convertible Bonds: Modelling the Components, Valuation and Hedging the Position

Break down a convertible bond and derive a valuation that holds up against observed market prices

  • 2 days — 14 h
  • In-person or virtual
  • Expert
  • Up to 6 participants

A convertible bond combines a debt claim, an equity option and issuer risk, all governed by call and put provisions that materially change how the instrument behaves. A single misread clause, or an overlooked stock borrowing cost, is enough to keep the model price persistently away from the traded price.

These two days start from the offering documentation and run through to managing the position. Participants value the same instrument using a lattice model and then a finite difference model, calibrate the parameters to market data and simulate a delta hedge across several scenarios.

Learning objectives

  • Break down a convertible bond into its bond component and its option component
  • Extract from offering documentation the parameters required for valuation
  • Implement a lattice model and then a finite difference model
  • Incorporate credit risk together with call and put provisions
  • Calculate sensitivities and build a hedge using the underlying
  • Analyse the gap between model price and market price

What makes this programme different

Offering documentation is worked through in detail to extract the model parameters
The same instrument is valued by lattice and by finite differences and the differences are explained
A delta hedge is simulated across several market scenarios

Programme

1Anatomy of the instrument

Read the contract before modelling

  • Bond component and conversion right
  • Conversion ratio, premium and parity
  • Early call and put provisions
  • Adjustments following corporate actions
  • Payoff profile and behavioural zones of the instrument

2Valuation models

Select the technique that fits the provisions

  • Decomposition approach and its limitations
  • Binomial model and treatment of provisions exercisable at any time
  • Finite differences and boundary conditions
  • Introducing credit risk into the discounting
  • Models with non-constant volatility

3Parameters and calibration

Feed the model with defensible data

  • Estimating the volatility of the underlying
  • Yield curve and issuer credit spread
  • Expected dividends and their effect on the conversion decision
  • Liquidity of the instrument and stock borrowing cost
  • Consistency checks on the parameter set

4Hedging and managing the position

Holding the position over time

  • Calculating delta, gamma and volatility sensitivity
  • Hedging with the underlying and rebalancing frequency
  • Volatility arbitrage on convertible instruments
  • Credit and liquidity risks carried in the portfolio
  • Breaking down the result by risk factor

Who is it for

Quantitative analysts, market operators, convertible fund managers, structurers, valuation specialists and risk control officers.

Prerequisites

Sound command of option pricing and interest rate products.

Dates & locations

36 scheduled dates between November 2026 and December 2027. Seats are confirmed in the order enquiries are received.

November 2026

December 2026

January 2027

February 2027

March 2027

April 2027

May 2027

June 2027

September 2027

October 2027

November 2027

December 2027

None of these dates suit you? We open additional sessions on request, and any programme can be run privately for your team.

Practical details

Before the programme
Online positioning questionnaire. Your development objectives are shared with the trainer, who tailors the practical case studies to your context.
Teaching methods
Theoretical input, workshops and practical case studies. Digital course materials and method sheets provided.
Assessment
Multiple-choice tests and role-play exercises. Assessment of learning at the start and end of the programme, with immediate and 60-day follow-up evaluations.
After the programme
One year of access to the e-learning platform. Self-assessment of the skills acquired and a 30-day follow-up session with your trainer.
How to register
Registration online or on the basis of a quotation.
Lead time
11 working days after confirmation of registration.
Accessibility
Accessible to people of determination. Contact our accessibility coordinator to design a suitable solution: contact@mpf-academy.ae
Start dates
Rolling intake: in addition to the scheduled sessions, this programme can start on request.