Why would you expect that a distressed convertible would have a delta of zero?
What will be an ideal response?
Delta ranges from 0 to 1 . The delta can help describe the character of the convertiblebond. At one end ofthe spectrum is a delta of 1, which means that the convertible bond will mirror the movement inthe underlying stock.If the delta is 0, basically the bond is a straight bond since
a change in the price of the underlying stock has no impact on the convertible bond's price. A distressed convertible is like a straight bond because there is no real possibility of conversion. Thus its delta is essentially zero.
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What will be an ideal response?