Pricing Hybrid Securities: The Case of Malaysian ICULS

Obiyathulla Bacha

MPRA Paper from University Library of Munich, Germany

Abstract: This paper provides an indepth analysis of Irredeemable Convertible Unsecured Loan Stocks or ICULS. A Malaysian variant of the convertible bond, ICULS are a hybrid security. Despite their introduction and trading since the late 1980’s, not much work have been done on them. This paper presents the first empirical evidence on the pricing of ICULS. We propose a pricing model for ICULS, built on the replication technique of options. Using 30 months (2½ years) of daily price data, we test our model on a sample of 34 ICULS. Though on average ICULS are underpriced by 2.3%, we find an equal number of under and overpriced ICULS. Our findings show that not only does the market misprice ICULS, the mispricing is sustained over quite a while. Infact, even over a one year window period, marginal mispricing remains. We argue that issuers of ICULS benefit much more than investors do.

Keywords: Pricing of Hybrid Securities; Irredeemable Convertible Unsecured Loan Stocks or ICULS; Option Pricing, Pricing Efficiency (search for similar items in EconPapers)
JEL-codes: G12 G14 G19 (search for similar items in EconPapers)
Date: 2004, Revised 2004-06
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in The Journal of International Finance 3.16(2004): pp. 3154-3172

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