Black swan and Conversion value: Difference between pages

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''Risk management.''
''Convertible bonds''.
An apparently unusual event of very high impact, particularly one which - before it happened - was believed in error to be highly improbable or even impossible.


The use of the term in finance derives from the widespread historical (and erroneous) belief in the Northern hemisphere that black swans did not exist, in the period before the common occurrence of black swans in the Southern hemisphere had been reported in the North.
The total current market value of the ordinary shares (or other securities) for which each convertible bond may be exchanged (at the bondholder's option).


The concept was popularised in a 2007 book by Nassim Nicholas Taleb - "The Black Swan" - where he summarises the problem in risk management as "the confusion of absence of evidence of Black Swans (or something else) for evidence of absence of Black Swans (or something else)". 
For example, if each convertible bond may be exchanged for 40 ordinary shares, and the ordinary shares are currently trading in the market at £2 each, then the conversion value = 40 x £2 = £80.
In other words, that the existence of financial "black swans" tends to lead to the systematic under-assessment and understatement of financial risk.
 
[[Risk management]]
== See also ==
* [[Convertible bonds]]

Revision as of 22:07, 4 August 2013

Convertible bonds.

The total current market value of the ordinary shares (or other securities) for which each convertible bond may be exchanged (at the bondholder's option).

For example, if each convertible bond may be exchanged for 40 ordinary shares, and the ordinary shares are currently trading in the market at £2 each, then the conversion value = 40 x £2 = £80.

See also