The Pricing And Empirical Study Of Seasoned Equity Offerings

Based on the structure of China capital market, the author points out that seasoned equity offering(SEO)is very important in China capital market and that most current paper is focused on why SEO is preferred by China listed corporations and what are the pluses and minuses of SEO. However, there is litter research on the pricing theory of SEO. This lack of research on SEO pricing limited the discussion of SEO to be only focused on the policy factors, such as non-tradble share, insider controlling, and so on. Therefore very few quantitative indexes were available in those analyses. In addition, there are no feasible methods to improve the rational of the SEO under the current policy system. This paper intends to propose a reasonable pricing method for SEO under China's current capital policy system.The author points out that there are some default pricing mechanics in China's current capital market, such as the high percentage and lower holding cost of non-tradable share, insider control, old shareholder bid with high price and lower ability of value discovery. The current belief is that the SEO and right offerings are a game between old and new shareholders. Based on this game, the relationship among operation conditions of old and new project, the pricing and capital stock of old and new share is set up under the principle of Nash Equilibrium. The traditional pricing theory can't get an appropriate price for SEO and right offerings because they can't reflect this"marrying effect"between old and new stockholders'envisioning. Using this principle, the pricing models of SEO and right offerings are got under full circulation and non-tradable share, and empirical study is done on the data of SEO corporations. From these results we can conclude that the price of SEO is always overvalued and this overvaluation is a reason of equity refinancing preference. Beside those researches, a theoretical model is set up based on the investment risks.After a detailed review and analysis of the current literature of convertible bond pricing issue, the flexibility of those foreign researches to China convertible bond is discussed, and some defects of the original research are pointed out. The author initially sets up a two-factor model under the special condition of non-tradable shares in China's capital market. To the numerical calculations of the pricing models, the author finds that the Monte Carlo simulation is the best methodology to price convertible bond among the finite difference method, finite element method, binomial tree model and Monte Carlo simulation since it can uniquely accurately simulate the properties of the convertible bond. However, since general Monte Carlo method could not be used directly to simulate the convertible bond with the features of American call, the author made some modifications to the general Monte Carlo method and proposes the recursively amended Monte Carlo simulation. The new method is applied to price Nanjing Shuiyun's convertible bond. The simulated result shows that the property of convergence and memory consumption is good, and the precision of simulation is good. Using this method, the value of Nanjing Shuiyun convertible bond is evaluated. After careful analyses of the calculation, the author finds that the value of convertible bond is always undervalued and that the value of convertible bond is the value of a nested option composing of all clauses and is not the simple sum of the value of each clause.