Positive Studies On The Investment Value Of Convertible Bonds

China's capital market has already been developed for more than ten years, among which the stock market dropped in recent years after the first bloom, and convertible bonds become thriving as new financial derivative securities. Convertible bonds belong to the fixed income bonds, as hybrids of the bonds and call option. The holders of convertible bonds have two major rights: firstly, they can receive a fixed cash flow during the term of conversion in that convertible bonds belong to the fixed income bonds; secondly, they can convert the bonds to underlying stock asset in that they are the derivative securities from the stock. If the operation of the issuer is fairly good and the stock trend is fine, the call option embedded in 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 call option. On the condition that the stock market index has dropped for a long time, convertible bonds become the new investment instrument by the institution because of the low risk.The article here mainly makes a study on the investment value of convertible bonds.Chapter One introduces the concept, definition and principles of convertible bonds, and analyses the designing term, with a review of the development of the domestic and overseas convertible bonds market and relevant study articles .The development of China's convertible bonds market is for a short time, and most of personal investors know it little. In this area the American convertible bonds market with more than one hundred years is a good reference.Chapter Two makes a summary of pricing model and relevant theories. Different pricing models for bonds and option, especially the single-factor model and two-factor model, have been showed. The relevant theories such as financing , capital structure, risk investment and financial engineering theories are another main point.Chapter Three makes a study on investment value of convertible bonds in the positive aspect. As a good point of China Merchants Bank convertible bonds, using different pricing models in chapter two, the price of bonds and option in theory has been decided, then a contract with the actual price has been made. On this basis, thecomparative analyses between the prices in the theory and fact of listing convertible bonds in China's market make a conclusion that the value of convertible bonds in China's market has been undervalued. This is the main innovation in the article.Chapter Four, on the basis of last three chapters, provides some useful strategies for the investment of China's convertible bonds market. According to the influential elements of convertible bonds and different market condition, such as the bull market and bear market, some investment strategies have been introduced, for example, the arbitrage and hedge.