Research On Convertible Bond Pricing In Domestic A-share Market Based On Monte Carlo Method

In historical retrospect,convertible bond transactions in the secondary market had a relatively transitory in our country,but came out with an independent bull market between 2019 and 2021.Among them,the CSI Convertible Bond Index rose more than 50%and convertible bond-themed funds averaged over 10%return,making convertible bond trading to be sought after by small and medium investors in the domestic market.At current,convertible bonds have become an indispensable member of investors’ diversified asset allocation,while the continued impact of the COVID-19 epidemic since 2019 has also made convertible bonds gradually become an important dredging tool for listed SMEs to solve their financing difficulties.By the end of 2022,the size of domestic convertible bonds in existence alone exceeded 800 billion yuan.The rapid expansion of the market reflects the huge transaction potential of the domestic convertible bond market and the enthusiasm of individual investors and professional institutions for the allocation of this product.The rapid development of convertible bond market has attracted more and more discussion on its valuation and pricing models.However,due to the dual characteristics of convertible bonds itself as stock and debt,pricing is not only affected by bonds,but also by the complexity of nested clauses,which often leads to inaccurate pricing and mispricing in actual analysis.Through the observation of the market.the author found that domestic convertible bonds sometimes follow the same rise and fall of the positive stock,and sometimes depart from the positive stock to come out of the independent situation.Therefore,after considering the mainstream research ideas at home and abroad,the author did two studies,one is the application of three pricingc models for convertible bonds and the comparison of simulation results,and found that the Monte Carlo Library Least Squares Method pricing model can better match the terms of domestic convertible bonds,while the B-S pricing,the binomial model fitting results are close to the market trend.but the pricing range deviates from the actual value.and the Monte Carlo simulation results are closer to the actual value,so the model can provide reference for issuers to set the conversion price and conversion terms to a certain extent,and also provide reference significance for investors to calculate the Rate of Risked Return and adjust investment strategies.And the second is to observe the decoupling between domestic convertible bonds and the rise and fall of the positive stock.Therefore,the author further compared the implied volatility of the convertible bonds with the volatility of the corresponding positive stock during the term,and realized risk hedging arbitrage by choosing to buy convertible bonds whose volatility is at a low level.