Among those 400 bn, about 320 bn USD are "Vanilla" convertible bonds, the largest sub-segment of the asset class. Convertibles are not spread equally and some slight differences exist between the different regional markets:   Convertible bond investors get split into two broad categories: Hedged and Long-only investors. The splits between those investors differ across the regions: In 2013, the American region was dominated by Hedged Investors (about 60%) while EMEA was dominated by Long-Only investors (about 70%). Globally the split is about balanced between the two categories. In theory, the market price of a convertible debenture should never drop below its intrinsic value. The intrinsic value is simply the number of shares being converted at par value times the current market price of common shares. The 3 main stages of convertible bond behaviour are:   In-the-money CB's are considered as being within "Area of Equity" (the right hand side of the diagram). At-the-money CB's are considered as being within "Area of Equity & Debt" (the middle part of the diagram). Out-the-money CB's are considered as being within "Area of Debt" (the left hand side of the diagram)  From a valuation perspective, a convertible bond consists of two assets: a bond and a warrant. Valuing a convertible requires an assumption of Using the market price of the convertible, one can determine the implied volatility (using the assumed spread) or implied spread (using the assumed volatility). This volatility/credit dichotomy is the standard practice for valuing convertibles. What makes convertibles so interesting is that, except in the case of exchangeables (see above), one cannot entirely separate the volatility from the credit. Higher volatility (a good thing) tends to accompany weaker credit (bad). In the case of exchangeables, the credit quality of the issuer may be decoupled from the volatility of the underlying shares. The true artists of convertibles and exchangeables are the people who know how to play this balancing act. A simple method for calculating the value of a convertible involves calculating the present value of future interest and principal payments at the cost of debt and adds the present value of the warrant. However, this method ignores certain market realities including stochastic interest rates and credit spreads, and does not take into account popular convertible features such as issuer calls, investor puts, and conversion rate resets. The most popular models for valuing convertibles with these features are finite difference models as well as the more common binomial- and trinomial trees.