Study On The Option Pricing Of Convertible Bonds

Convertible bonds attract a lot in the capital market, as its profit is unlimited and risk is limited, but the most important thing is convertibility. Its value can be divided into pure bond value and option value, among which option value is somewhat hard to make sure. Therefore, due to the future demands of practice, discussing the appraisal and the value of convertible bonds is profoundly instructive to the investor and capital raiser.The pricing theory of convertible bonds has been developed abroad for nearly half a century and formed two pricing models based on corporate value and on stock price respectively. With a short development history of convertible bonds, their pricing theory is relatively new to the business community in China. Therefore, it is of vital importance for us to iearn about the development of foreign pricing theory of convertible bonds.Although the appraisal of convertible bonds have make a progress, but the essential problem has not been solved because of the complication of convertible bonds' structure. The key point is inaccurate and not objective appraisal of the option characteristic, resulting in the big Jifference between appraisal and authentic value.This article is based on the option pricing theory to discuss the appraisal of convertible bonds, includes:Chapter 1 and Chapter 2 overview the research condition of convertible bonds in home and abroad, and look back the present situation and trend, and analyze the difference and the problem between home and abroad appraisal, and come up with a solution.Chapter 3 introduce the option theory and option pricing theory.The option theory introduce the basic concept of option and the forming system and the influential factors of option value. The option pricing theory introduce basic theory and option pricing model, especially Black-Scholes model, and provide solid theory foundation for the next research.Chapter 4 and Chapter 5 study the Wanke convertible bonds. Chapter 4 introduce information about Wanke and the reason to choose Wanke andanalyze convertible bonds option characteristics, which demonstrates Wanke convertible bonds have obvious call option characteristics, so application of Black-Scholes model to appraise is reasonable. Chapter 5 select the Wanke convertible bonds data from January, 17th 2003 to January 30th 2004 to appraise to find that the price of Wanke convertible bonds is obviously underestimated.Chapter 6 points out that Black-Scholes model is able to promote the accuracy of the appraisal of convertible bonds, but has somewhat limitation.