Exchangeable bond

Exchangeable bond (or XB) is a type of hybrid security consisting of a straight bond and an embedded option to exchange the bond for the stock of a company other than the issuer (usually a subsidiary or company in which the issuer owns a stake) at some future date and under prescribed conditions.[1] An exchangeable bond is different from a convertible bond. A convertible bond gives the holder the option to convert bond into shares of the issuer.

The pricing of an exchangeable bond is similar to that of convertible bond,[2] splitting it in straight debt part and an embedded option part and valuing the two separately.

Pricing

Price of exchangeable bond = price of straight bond + price of option to exchange

Price of an exchangeable bond is always higher than the price of a straight bond because the option to exchange adds value to an investor.
Yield on an exchangeable bond is lower than the yield on a straight bond.

References

"Successful placement by KfW of exchangeable bonds due 2014, exchangeable into shares of Deutsche Post AG". 23 July 2009. Retrieved 2015-07-28.
Barber, Brad. "Exchangeable Debt" (PDF). ucdavis.edu. Retrieved 2015-07-28.

External links

Bond market
Bond Debenture Fixed income
Types of bonds by issuer	Agency bond Corporate bond Senior debt Subordinated debt Distressed debt Emerging market debt Government bond Municipal bond
Types of bonds by payout	Accrual bond Auction rate security Callable bond Commercial paper Consol Contingent convertible bond Convertible bond Exchangeable bond Extendible bond Fixed rate bond Floating rate note High-yield debt Inflation-indexed bond Inverse floating rate note Perpetual bond Puttable bond Reverse convertible securities Zero-coupon bond
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Securitized products	Asset-backed security Collateralized debt obligation Collateralized mortgage obligation Commercial mortgage-backed security Mortgage-backed security
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Capital structure

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Valuation

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