Research On The Trading Strategy Of Convertible Bonds

Convertible corporate bond is different from common corporate bond.This kind of bond has both the nature of debt and equity.The part of debt provides the minimum guaranteed income for investors.And the part of equity provides a call option,which makes it possible for investors to obtain excess income.After China Securities Regulatory Commission issued the new refinancing regulations,more and more companies choose to use convertible bonds for financing.The market of convertible bond is becoming prosperous.The research field of domestic scholars is the pricing of convertible bonds.Only few people research on the trading strategies of convertible bonds.So,most investors don’t know this investment tool.It decreases the liquidity of the market of convertible bond.It is necessary to study the value structure of convertible bonds,and build a systematic trading strategy.This thesis studies on the transaction data of 329 convertible bonds which are offered before December 31,2019.And analyzes the life cycle of convertible bonds,the call provision,the put provision,and price adjustment provision.This thesis uses the model of B-S to price convertible bonds.And find the offering price of convertible bonds was undervalued.So,it’s possible for investors to get returns from allotments or applications.Convertible bonds can produce the steady cash flow,which provides guarantees for investors.Because of the failure of China’s capital market,the price of convertible bond occasionally shows negative premium.It creates arbitrage opportunities for investors.If the price of underlying stock lower than the conversion price over a period of time,the issuers might be adjusted the conversion price of convertible bonds.Such behavior would increase the value of option of convertible bonds.According to the statistics of convertible bonds which had delisted,this thesis finds that most convertible bonds were called.This event also provides trading opportunities for investors.According to the trading opportunities,this study draws five basic trading strategies.They are the strategy of allotments and applications,the strategy of opening position,arbitrage strategy,the coping strategy of price adjustment,and the coping strategy of redemption.The study shows that only a part of convertible bonds is worth applying or exercising the pre-emptive right.If the market price of convertible bonds lower than discounted value,investors can buy them.And investors shouldn’t arbitrage if they don’t sell short.There is a positive announcement effect if issuers adjust the conversion price of convertible bonds.Investors could get profit if they hold convertible bonds for long term and sell them before redemption.Beyond that,this thesis also studies on the risk events.At last,the thesis concludes two synthesis strategies for different investors,which are short-term speculative strategy and the strategy of long-held.