Research On Converbtible Bonds Prcing With Dilution Effect

Convertible bonds as a new financing tool, has become one of the importantrefinance ways of listed companies in our country. However, convertible bonds aresophisticated derivatives which contain elements of both debt and equity. Its pricing isalso very complex. Currently the pricing methods of convertible bonds mainly includepartial differential equation method, the finite difference method, the binary tree pricingmethod and Monte Carlo simulation pricing method. But in order to comprehensivelyconsider the factors of the underlying stock price, interest rate and credit risk, and themaneuverability of the model, this paper uses the binary tree method for the convertiblebonds pricing.First, this paper introduces the development of the convertible bonds and investmentadvantages and risk. This dissertation analyzes in detail the basic elements and terms andits value factors of convertible bonds. Finally find the most three critical influence factorsfor the model which are the underlying stock price, the risk-free interest rate and creditrisk.Secondly, this dissertation expounds the principles of convertible bonds pricing,which is the theory bases of convertible bonds pricing. Detailed research is made on theconvertible bonds pricing methods, and the binary tree model with two factors is finallyestablished on the basis of the stock price and interest rate. The basic terms andconversion terms are evaluated.Finally, according to the specific characteristics of convertible bonds in our country,it makes some correction of the model. Credit spreads and the dilution factor areintroduced into the model, and then convertible bonds pricing model based on dilutioneffect is established. This paper selected11convertible bonds which are circulating in themarket as samples of the model. And the model with dilution factor is verified. Theprocess of solving this model is realized through Matlab software, which proves theapplicability of the model.