A Study Of Convertible Bonds' Value

A Convertible bond is a kind of bond that can be converted into fixed amount stock in a period of time or after a period of time. Convertible bonds, which have the characters of both options and bonds, are hybrid financial products resource from stock and bonds. The convertible bond is considerably more complex than the warrant, not only because it pays a periodic coupon, but also because it involves a dual option: on the one hand, the bondholder possesses the option to convert the bond into common stock at his discretion, and on the other hand, the firm possesses the option to call the bond for redemption, the bondholder retaining the right to convert the bond or to redeem it. The complex of clause decides the complex of the convertible bonds' value. The national and oversea scholars do different levels of study on convertible bonds from price model, clause design to the capital structure and so on. So this article analyses the value of convertible bonds.First I review the basic methods of studying the value of the convertible bonds. And, I point out the weakness of these methods. Second, by using the finance engineering's theory and method and basing on the concrete characteristics of Chinese convertible bonds, I construct the pricing model and analyses the convertible bonds' value. The result is that the theory's value is higher than the market price. Then, I prove that liquidity and fluctuating can explain the result well. Lastly I study the Chinese convertible bonds basing on domestic bonds market and relevant study articles.