Study Of Convertible Bond Pricing Theory By Monte Carlo Method

Being one of the financial derivatives, the convertible bond become the high speed developing period from 2002, although it came out late in China, now it has gradually been the important way to re-financing for marketed companies. As a kind of financial derivative which has both traditional bond property and option property, convertible bonds pricing is a quite complicated problem.The central purpose of this thesis is to expound the rationality and feasibility of Monte Carlo method in convertible bond pricing theory, then, based on idiographic data of Zhaohang Convertible Bond, we found pricing model by Monte Carlo method and get conclusion. In the first chapter, we narrate the characteristic of convertible bond, give some clues about development and actuality of the market and its pricing theory; In the second chapter, we introduce modeling idea and some material problems in the model in detail, draw the yield curve which is very important to the model by spline method; In the third chapter, we first explain the basic idea and convergent speed of Monte Carlo method, then, give the mathematical description for financial market, prove equivalence of non-arbitrage market, existence of risk neutral probability measure in the market and the price process of underlying asset is a martingale; in the forth section, we introduce how to simulate stock price path by Monte Carlo method in detail, based on foregoing result, we prove the path is a martingale, thereby, the model is logical. Finally, we regard Zhaohang convertible bond as demonstrable object, give typical model and pricing result. Compared with actual price in the market, we discover the educed conclusion is very good, lastly, we try analyzing the reason why the model can get such good result.