An Analysis Of Convertible Bond Investment Strategy

Convertible bonds combine both bond properties and stock option. Inthis paper, research begins with the analysis of convertible bonds’ terms,mainly using the Monte Carlo simulation method to establish the theorymodel of convertible bonds pricing.Construct pricing deviation index, and choose the mean reversion test tocheck whether the value of convertible bonds will appear mean reversionphenomenon. Calculate the equity component, and conclude that three typesof convertible bonds incline to have greater arbitrage opportunity.Based on the analysis, these three types are chosen to be the sample.Under the assumptions of strategy model, this paper comes up with bothshort and non-short investment strategy. With the test of sample convertiblebonds, such investment strategies are likely to get positive earnings. But inactual market, risk of investment strategy must be paid special attention to.