Convertible Bond Pricing And Clause Designing

Convertible bond (CB) is a special form of corporation debt securities. It has both characteristic of bond and option. The issued clauses of convertible bond include interest rate, convertible rate, convertible price, convertible term, returning clause, selling back clause, especially downward modifying clause, and so on. Convertible bond appeals to company and investors very much. Issuing convertible bond can postpone ownership right dilution, optimize capital structure of company, and avoid tax. Investing convertible bond can have an income guarantee, share achievement of issuing company and the rising of the stock price. But convertible bond also has risk. To issuing company, it faces these risks: issuing failing risk, ownership right dilution risk, interest rate risk, converting failing risk, and so on. Especially, if convertible bonds were converted failed, issuing company will face financial crisis, so much as bankruptcy. To investors, they also face interest risk, credit risk, stock price fluctuating risk, and so on. So, if investors want to invest convertible bond, they should analyze it, estimate its value and study its clauses. When company issues convertible bond, they should analyze the economy and the company, choose a good occasion, set reasonable clauses to realize the aim of attracting investors, issuing successfully and converting successfully.This thesis analyzes the definition, characteristics, and kinds of convertible bond. It reviews the history of convertible bond, and convertible bond in China. Then it studies the price model of convertible bond and analyzes the different characteristics of these models. It takes Zhaohang convertible bond for example, collects datum, and uses Black-Scholes model to study it. It computes the theory value of Zhaohang convertible bond, and finds the main factors of influencing the value of convertible bond. At last, this thesis analyzes the issued convertible bonds of our country and their clauses. Different clause design has great influence to issuing company and investors. According to the clause design problems of convertible bond issued in our country, this thesis advances the improving method, and how to design reasonable clause. The thesis provides the theory gist and empirical method for issuing company and investors.