Convertible bonds have existed for over 150 years, and are academically interesting to research given that they have both stock- and bond-like components. In going through basic pricing models for each component of a convertible bond, including stocks, bonds, and options, a rudimentary pricing model is presented for convertible bonds. The 1997 Goldman Sachs convertible bond pricing model is also presented, after which the two models are compared and discussed. The rudimentary pricing model presented has some problematic assumptions but thoroughly explains each component of a convertible bond, while the Goldman Sachs model is simpler and easier to understand, but is less applicable to other areas of finance.
