Not every hybrid that shows up on a convert screen is a classic optional convertible with a live bond floor. Mandatories erase the floor by construction; reverse convertibles flip who owns the equity risk; exchangeables and cross-currency issues change which equity and which FX you hedge. Trade the wrong structure with a classic long-bond / short-stock playbook and the P&L attribution will not match the Greeks you thought you owned. This note catalogues the structures that rewrite Convertible Terminology and Payoff definitions.
Learning objectives. By the end of this note you should be able to:
- state why a mandatory has no bond floor and what that does to downside protection;
- describe PERCS and PEPS payoffs and where their gamma changes sign;
- explain reverse convertibles versus classic converts from the investor's risk side;
- adjust parity for cross-currency converts and name what exchangeables deliver.
In this lesson
- Mandatories: no option to stay in cash
- Reverse convertibles and related flips
- Exchangeables and cross-currency
Before you start
The full lesson, with worked examples and exercise solutions, is for members.
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