Pricing Of Convertible Bonds In China

The Convertible Bonds' market is in the preliminary stage in China, but it attracts more and more attention with the development of Capital Market of China. Convertible Bond is a kind of rather complicated credit derivatives, it has the characteristics of both common bonds and stocks, so it's impossible to price convertible bonds with the traditional pricing methods of bonds or that of stocks because the complexity of clauses in CBs results in the difficulties of Convertible Bonds pricing. This paper firstly reviews the pricing theories of Convertible Bonds, compared with other pricing methods, Binomial Tree Model is more effective in Convertible Bonds pricing. Then this paper uses Binomial Tree Model to price the CBs in China. The pricing results show that compared with the theoretical prices, the CBs are significantly underpriced. Finally, this paper gives some reasons of the phenomenon.