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Investment Value Of Convertible Bonds: Empirical Study On Chinese Security Market

Posted on:2006-11-05Degree:MasterType:Thesis
Country:ChinaCandidate:Q TangFull Text:PDF
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As a newly developed derivative, convertible bond is characterized by its high value of call option and low value of investment risks, which is not fully understood by Chinese investors yet. This paper employs qualitative and quantitative methods in three parts to demonstrate the investment value of Chinese convertible bonds. The first part proves that the price of convertible bonds have asymmetrical elasticity, that is, when the stock price falls, so will the price of CB; however, the extent that it falls is far below that of the stock price; when stock price rises, the rising extent of CB price exceeds that of the stock price. The second part adopts Markowitz's Mean-Variance Investment Portfolio Theory to demonstrate that convertible bond is a good substitute to common stock and corporate bond. In other words, when we add CB into a portfolio, we find that the efficient frontier rises markedly. And this characteristic stands out especially during the period from middle 2003 till early 2005. The third part values CB with Black-Scholes option picing model and compares the intrinsic value with their market price and we find that it is very common that most convertibles in the Chinese security market are under-estimated. In a word, this paper studies Chinese convertible bond during middle 2003 and early 2005 in order to present an investment valuation of CB for Chinese investors' reference.
Keywords/Search Tags:Convertible Bond, Risk, Yield, Efficient Frontier Set, Black-Scholes Option Pricing Model
PDF Full Text Request
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