SCR Calculator User Manual

Version Last modified 2024-3-21

Convertible Bonds

The "Combo ID" method can be used on arbitrary sets of assets, so you can model complicated assets' SCRs easily. Swaps and convertibles are two prime examples.

Convertible Bonds can be implemented as a "Combo Asset" with two components - a corporate bond (often floating rate and high quality) and an equity call option. In the SCR Calculator, you need to assign a common "Combo ID" to these two assets, and ensure that:

  • The corporate bond's market price is set to the "Bond Floor" of the convertible bond that you are considering.
  • The current value of the call option should be set to the portion of the convertible bond's price over and above its bond floor.
  • The underlying share price and option strike of the call option should be set commensurate with the convertible bond's price and conversion ratio.

Assuming a convertible has current price of 115 and its bond floor is 95. The amount of equity at the authorised conversion ratio is currently worth 130 and conversion can only happen in month 30 from inception.

The corporate bond:

The call option:

Both added to a portfolio, with the same ComboID. Note that the bond has spread SCR and equity SCR, all appropriately calculated accordingly.

If you export the portfolio, the 'ComboID=xxx;' will automatically be added to the 'Info' column of the inputsheet. Or you can manually edit to add such information, either directly in the portfolio form, or in the inputsheet.

If the convertible bond has multiple allowed conversion dates, you can enter each as a call option, thereby obtaining an accurate SCR estimate of the bond.

When there are many assets in the portfolio, you can use the "Combo ID filter" on the lower right corner to filter for specific combo assets and observe its standalone SCR.

For normal assets, you should leave the "Combo ID" empty.

A more detailed case study, containing screenshots of calculator inputs and outputs, together with the input spreadsheet generated from portfolio form export, can be found below.