Disassembling The Value Of Convertible Bonds And Pricing Convertible Bonds

Convertible bonds are the bonds that are issued by a company, according to the due course of law, and that can be changed into shares of the company under the appointed conditions during a certain period . This kind of financial instrument, which combines the characters of bonds and stocks together, gets extensive attentions of investors and factors all around the world since it's issued. In our country, The issue of convertible bonds starts in 1992, and the market of convertible bonds had made great progress in issuing amount and issuing scale in more than ten years since that time.Firstly, This paper reviews the development of convertible bonds at home and abroad, and summarizes the researches on the valuation of convertible bonds done by the foreigners and Chinese since the seventies of the 20th century. Then, this paper presents the basic conception of convertible bonds, and analyzes the characters of the value of CBs and the factors having influence on its value. Based On the analysis above, this paper tries to disassemble the value of convertible bonds as two parts: one is the value of the straight bonds and the other is the value of options. So according to the disassembling, this paper gets a swap, and describes the trade course and relevant clause of the swap, and then presents its meaning to the development of our security market.The key to put the swap into practice is that we must know how to estimate its value properly. So this paper tries to combine the valuation method of Longstaff and Schwartz with DCF, and then to use the methods to evaluate the value of options and straight bonds. So adding the two parts, we will get the value of convertible bonds. Using the methods above, this paper analyzes the current situation of the convertible bonds market in China through the pricing of 19 listed convertible bonds. And through the analysis above, this paper gets some viewpoints about the market.