China Convertible Bond Pricing Theory And Empirical Research

A convertible bond is a hybrid instrument which is in the middle of bond and stock. Because of its convertibility, convertible bonds have developed very fast in the whole world. In the last ten years, Chinese convertible bonds market also has a rapid development along with the perfection of Chinese stock market. It is of great significance to evaluate convertible bonds for issuing companies designing issuance provisions, investors reasoningly investing, and convertible bonds market developing healthily.This paper studies the valuation of convertible bonds, by making use of modern financial mathematics, financial engineering, partial derivative function and Binominal tree model. We improve the traditional Black-Scholes model by analyzing the substance of convertible bonds' terms. then, we do the empirical analysis and the contrastive researches among traditional Black-Scholes model, ameliorative Black-Scholes model and Binominal tree model by using 1,579 groups date of nine convertible bonds between 1 Jun 2006 and 31 Jul 2007.And finding that the ameliorative Black-Scholes model reduces 7.07% windage than the traditional Black-Scholes model, the Binominal tree model just has a 4.08% windage, so the Binominal tree model is the more adapt to the pricing of convertible bonds in the current Chinese stock market. In the end, this paper also have given some advices and methods to consummate the pricing of Chinese convertible bonds in these ways just as the choice of pricing model, the select of parameters, the designing of convertible bonds and the construction of Chinese stock market.