Analysis For Convertible Bond Pricing Methods Of China

Convertible bond is a kind of traditional financial instruments which has been used more than four years at international capital markets, the introduction to China's capital market are still less than two years, so the financial instrument for those who are relatively new financing very strange method of financing. Convertible bond contrast with both of new financing ways that a new share allotted to the old shareholders and issuing new shares to the shareholders, has many advantages, such as low financing costs, raising a large scale, long-term debt, capital growth is limited and can be a premium conversion, etc. It can be used as addition to stock and corporate bond issuance to raise large sums of money outside the third method of financing, so all kinds of investors and fund-raisers of all ages favor it. Pricing method for convertible bonds in the international market, gain experience in the practice shows that if this kind of pricing derivative securities can be recognized by the majority of market participants and being used, the types of derivative securities will show great vitality. In order to allow the majority of market participants to more accurately understand and easily to use this "new" financing tool of convertible bond and for the convertible bond pricing method of building blocks, I think we should turn our convertible bond pricing methods of the analysis as a Thesis. Because for any kind of financial products, analysis its value is the core content of studying the financial products. At present, China on convertible bond pricing research is still in its infancy, so in this context, the paper prepared for the current pricing of financial derivatives based on the numerical summary of the experience to make appropriate improvements, combined with the actual situation in analyzed and compared with the basis of domestic convertible bond pricing of the defect, fully demonstrate that adopt a new pricing method is reasonable and feasible. And I hope that this new research and analysis for convertible contribute to bond pricing method on the new theoretical and empirical research, and can assist the economic behavior of market participants to decision-making.Convertible bond pricing theory is that the pricing of financial products, an important branch of the theory, it can be traced back to the beginning of the last century leaves, when economists and financial experts in 1900 had begun prior to its research, including Samuel Sen, Ross, Walras, Sharp, Traynor, who were both pay a lot of effort on the pricing theory of financial products. Occupying key position on pricing theory of financial products including the intrinsic value of the decision theory, equilibrium pricing, capital asset pricing model, risk-neutral pricing, the classical theory of arbitrage pricing models, this classical theories ever provided a theoretical basis for and direction for the pricing of convertible bonds, the result is not very satisfactory. Since convertible bonds that contains a sale option, until in 1973, the researchers basically in this way, it is that the right to first determine the expected value of the expiration date, and then down through the introduction of discounted rights issue of the value of the period. Although theoretically this method can be found pricing principle, but difficult in applying in practice, or calculated by this method do not correspond to the price. Until 1973, the famous Black financial experts, Hughes and Merton in his studies successfully solved this problem. They think that, in the option pricing does not take into account any risk return, because the price of options is included, this part of the risk premium, rather than risk and return that had never existed. Since the formula was raised, Black-Scholes pricing model is widely used in financial products on foreign markets pricing practice, the use of most, most is for the most complex pricing of financial derivatives to provide guiding principles have gradually established its convertible bond pricing theory as a core position. Then in 1977, Brennan-Schwartz firstly make option pricing theory to guide the pricing of convertible bonds, the analysis is still time for the next few years a number of articles published continuously on the option pricing theory of the pricing of financial derivatives in the application of the article, the results of these thesis of convertible bond since the theoretical study of the pricing laid a solid foundation. His research is still in the investment banking community sought after by numerous institutional investors, institutional investors in these wide variety of innovative use of the process, they have introduced a variety of innovative convertible bonds, all with great success the development of option pricing theory is closely linked. Subsequently, Professor Swartz accepted the invitation of the formula for the Merrill Lynch LYON convertible bonds issued by the company made an independent pricing, LYON convertible bonds issued in the market, the actual price and pricing of the model also proved very close, it indicating that Market participants have generally agreed on guided prices that can be considered as pricing of convertible bonds base on option pricing theory.This paper reviews the international and domestic convertible bond market development process, pointing out that China's convertible bond pricing in the Development of deficiencies. Then the article draws on Western developed countries, scholars based convertible bonds pricing method, in combination with the convertible bond market is currently China's actual situation and the volatility of the discount rate was revised, and with the U.S. experience in convertible bond pricing drawing on the combined use of the convertible bond pricing of the method. Through systematic analysis and comparison, the initial proposed is more appropriate for the current conditions of the current pricing of convertible bonds. Proposed in this paper stock for the underlying asset pricing convertible bonds can be considered a better analysis of corporate credit risks in corporate bonds convertible bonds and warrants some part of the real market value. The modified binomial method for convertible bonds is another way (lack of short the market mechanism) to the pricing method for convertible debt analysis. Finally, the text referred to in convertible bond pricing in the face many problems, combined with our development of convertible bond pricing method, this paper gives some development and improvement of methods of pricing convertible bonds should pay attention to the shortcomings.