Article: The Valuation of Exchangeable Securities: A Pedagogic Approach Journal: Journal of Business and Management (JBM) 1997 Vol.4 No.1 pp.9 - 23 Abstract: This study applies a variant of the Black-Scholes option pricing model to the valuation of exchangeable securities. An exchangeable security is a new hybrid bond which grants its holder the right but not the obligation to exchange the bond for the common stock of a firm other than the issuer. The results indicate that market prices of these securities deviate from their respective theoretical values but the deviation declines with time. This evidence supports the underpricing of initial public offering of securities already documented in the financial economics literature. Inderscience Publishers - linking academia, business and industry through research

Title: The Valuation of Exchangeable Securities: A Pedagogic Approach

Authors: Delvin D. Hawley; O. Felix Ayadi

Addresses: Author address listing can be found in the "About the Authors" section at the end of the article.

Abstract: This study applies a variant of the Black-Scholes option pricing model to the valuation of exchangeable securities. An exchangeable security is a new hybrid bond which grants its holder the right but not the obligation to exchange the bond for the common stock of a firm other than the issuer. The results indicate that market prices of these securities deviate from their respective theoretical values but the deviation declines with time. This evidence supports the underpricing of initial public offering of securities already documented in the financial economics literature.

Keywords: Exchangeable securities; common stock; valuation; Black-Scholes model; hybrid bond; theoretical values.

DOI: 10.1504/JBM.1997.141029

Journal of Business and Management, 1997 Vol.4 No.1, pp.9 - 23

Published online: 05 Sep 2024 *

Title: The Valuation of Exchangeable Securities: A Pedagogic Approach

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