Book Image

Introduction to R for Quantitative Finance

By : Gergely Daróczi, Michael Puhle, Edina Berlinger (EURO), Daniel Daniel Havran, Kata Váradi, Agnes Vidovics-Dancs, Agnes Vidovics Dancs, Michael Phule, Zsolt Tulassay, Peter Csoka, Marton Michaletzky, Edina Berlinger (EURO), Varadi Kata
Book Image

Introduction to R for Quantitative Finance

By: Gergely Daróczi, Michael Puhle, Edina Berlinger (EURO), Daniel Daniel Havran, Kata Váradi, Agnes Vidovics-Dancs, Agnes Vidovics Dancs, Michael Phule, Zsolt Tulassay, Peter Csoka, Marton Michaletzky, Edina Berlinger (EURO), Varadi Kata

Overview of this book

Introduction to R for Quantitative Finance will show you how to solve real-world quantitative fi nance problems using the statistical computing language R. The book covers diverse topics ranging from time series analysis to fi nancial networks. Each chapter briefl y presents the theory behind specific concepts and deals with solving a diverse range of problems using R with the help of practical examples.This book will be your guide on how to use and master R in order to solve quantitative finance problems. This book covers the essentials of quantitative finance, taking you through a number of clear and practical examples in R that will not only help you to understand the theory, but how to effectively deal with your own real-life problems.Starting with time series analysis, you will also learn how to optimize portfolios and how asset pricing models work. The book then covers fixed income securities and derivatives such as credit risk management.
Table of Contents (17 chapters)
Introduction to R for Quantitative Finance
Credits
About the Authors
About the Reviewers
www.PacktPub.com
Preface
Index

Pricing a convertible bond


Convertible bonds are usually issued by firms with low credit rating and high growth potential. These firms can lower their interest costs by giving the right (but with no obligation), to the bondholder to convert the bond into a specified number of shares of common stock of the issuing company. The investor receives the potential upside of conversion into equity, while having downside protection with cash flows from the bond. The company benefits from the fact that when the convertibles are converted, the leverage of the company decreases while the trade-off is the stock dilution when the bonds are converted.

These characteristics state that the convertible bonds' behavior has three different stages: in-the-money convertible bonds (conversion price < equity price) behave like equity, at-the-money (conversion price = equity price) convertible bonds are considered as equity and debt, while out-of-the money (conversion price > equity price) convertible bonds...