| China's capital market has already been initiated and developed for 12 years,among which the stock market has made great achievement accompanying the reform of the state-owned enterprises into stock-share system. Here lies a dormant market trend of the brand-new development,particularly the development of the enterprises' bonds for the next stage of the China's bonds' market. Convertible bonds belong to the fixed income bonds and the affiliations of the securities. They are hybrids of the enterprises' bonds and the stock call option. Generally,the holders of the convertible bonds have two major rights:1,They can receive a fixed cash flow during the term of conversion because the convertible bonds belong to the fixed income bonds;2,They can stop the fixed cash flow during the term of conversion and convert the bonds to underlying stock asset according to the formerly stipulated items and price,for the convertible bonds also belong to the affiliations of the securities. If the operation of the issuer is fairly good,the option embedded the convertible bonds will probably be implemented. Thus the issuer may decrease the debts and financing cost through the conversion of the bonds into stock share. Therefore,the value of the convertible bonds is composed of the bonds and the option,but they may be largely affected by the underlying stock price,the interest rate,and the credit risk of the enterprises.The article here mainly dealt with the pricing of the convertible bonds and the portfolio strategiesChapter One introduces the principles for the designing of the convertible bonds and the history of the development of the convertible bonds,which is also a review of the research articles of the pricing of the convertible bonds and the portfolio strategies domestically and abroad. A convertible bond is normally composed of a bond,a stock call option,a call,a takeover clause and a put,ect. Since China's convertible bonds market has just been initiated,the entrepreneurs and the investors have not enough knowledge about them. The research background of it in China is comparatively weak. But the convertible bonds market in America has been developed for more than one hundred years and injected an indispensable energy for the growth of the America's newly developed industry.Chapter Two talks about the setting of the pricing of the bonds when theyare part of the convertible bonds. Different pricing models for various bonds are concluded. Also,the price behaviour characteristics of the pricing of the bonds are studied,especially the characteristics of some risks that affect the price of the bonds while the convertible bonds work as corporate bonds.Chapter Three talks about the setting of the pricing of the option of the convertible bonds. Different pricing models for various options are concluded. The relationships between options and different influencing factors such as the stock price,the time to maturity the volatility of the stock price and the risk-free rate are discussed. Also,the effect of the stipulations of the specific contracts towards the value of the option is being explored.Chapter Four talks about the portfolio strategies of the convertible bonds. The study of the strategy for the portfolios is separately discussed. Firstly,we discuss the optimization of the bonds' portfolios as corporate bonds,among which the credit risk is still the major concern of it Then,we will discuss the strategy of hedge for the portfolios of the convertible bonds,particularly the strategy of hedge involving the stock share and the convertible bonds.Chapter Five provides some suggestions for China's capital market in light of it's own special condition. Firstly,we have to enlarge the scale of the supplying and demanding market. Secondly,we can develop funds for the convertible bonds on the demanding side. Lastly,in order to provide a benchmark for both sides of the investors in the convertible bonds market,we had better make a further move towards the improvement of the construction of the market system.
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