The Study Of Pricing Convertible Bonds

As a new financial tool, convertible bonds develop quickly in the capital market, whichpromotes prosperity of the capital market and the innovation of the finance product. There is avery important significance to price convertible bonds accurately that issuing companies candesign issuance provisions reasonably, investors will invest rationally and the convertible bondsmarket will develop healthily. While convertible bonds are such a complex derivative that theymix the character of bond and stock, it is difficult to price.To address the above problems, this paper gets a reasonably pricing model on the basis ofthe Chinese convertible bonds market and the characters of the convertible bonds.Firstly, this paper introduces the basic conception of the convertible bonds and thedevelopment at home and abroad. Then the paper makes comparisons among the pricingmethods of convertible bonds. It shows that the binary tree method has more advantages thanothers. Lastly, the paper makes use of the data from convertible bonds market and pricing thebonds on the model that this paper has built. The result shows that the binary tree method is veryaccurate and is close to the market price. And the last, the paper analyses the result of thedeviation between result and the market price.