PROBLEMS OF CONVERTIBLE BONDS VALUATION IN IMPLEMENTATION OF INTERNATIONAL BUSINESS PROJECTS

Abstract

Abstract. The article analyzes the main approaches to estimating the value of convertible bonds, considering the factors of the event time and investor behavior. In the process of project implementation, there is often a need to finance costs that will ultimately contribute to increased cash flow. For an investor, there is a risk that he may not receive coupon payments or bond denomination on a timely basis or may not receive them partially or at all. For this purpose, a convertible bond offers a mechanism for the acquisition of a portion of the authorized capital of a project company by exchanging a specified number of bonds for the definite number of shares in proportion to the conversion rate. Right, but not obligation, gives the investor the flexibility to make the right strategic decision: get passive coupon revenue or participate in corporate governance. Such a decision should be properly evaluated and mathematically justified as it depends on the level of profitability and risk of the investor.
Keywords: convertible bond; hybrid financial instrument; business project; conversion; risk-neutral probability.