Analysis Of The Pricing Of Convertible Bonds Of China

China’s stock market entered to bear market since 2008. Manys of investors leaved away from stock market because of the weak market. But look at the stock market, there was an investment, even in the big weak market, fall with the stock market and sometimes rise oppositely to the market downturn. That type of investment is convertible bonds. With the increase of research in recent years, people are getting more and more attention and concern of this investment.The development time of China’s convertible bonds market is short, but the development was very fast in recent years, and the convertible bonds has collected more than two hundred billion yuan. The success rate was below 1%, almost all shows investors are interested in this invest breed. Convertible bonds is almost no risky because of its inherent characteristics, investors can gain more under low risk.The value of convertible bonds contains two parts, they are option value and bonds value. Now the convertible bonds in China’s market always contain three additional clauses, such as call provisions, put provisions and price special modification clause, have great influences on the bonds value. Based on the traditional of option pricing theories, we also considered the characteristics of the additional clauses and the game between market participants, the pricing model and the border are founded. And then, the CrankNicolson different method and the SOR method are used to solve the PDE. In the course of research and analysis, this paper based on different types of put provisions, separated the bonds into two categories, and each category were analyzed under four volatilities. The bonds of the first category were called no forced put provision, so the B-S option pricing model was used. The second type were called having forced put provision, Least Square Monte Carlo method was used as well as the B-S method. After making pricing analysis, the deviation of the estimated theoretical value and marketing price was calculated. And then we referenced to the Bollinger thinking and learned to define the upper and lower boundaries, if the theoretical value was within the upper and lower boundaries, then it could be considered to be acceptable. Finally, the reason of the deviation are also analyzed.