Pricing Model Study And Empirical Analysis Of China's Convertible Bonds

Convertible bond is a derivative financial product that appeared in recent years. It has become an important investment tool. Correct assessment of the value of convertible bonds is of great significance for investors to invest reasonably. But domestic theoretical researchers didn't provide a satisfying answer to the problem. The problem are as follows:the offerings of domestic convertible bonds are focused on nation-owned enterprises, which will lead to the lack of samples for the research, especially, many researchers only select one or two convertible bonds as samples for empirical tests. The empirical results can't tell generality and reasonability of the market for its small sample size. The other problem goes to that domestic researchers often directly apply foreign models to Chinese capital market neglecting its difference to foreign capital markets. The Pricing of convertible bonds is further studied in this paper by taking advantage of modern financial mathematics, financial engineering, partial differential equations and binominal method.Firstly, the fundamental elements, typical characteristics of convertible bonds and the elements of valuations of bonds and valuation factors are analyzed, then, the convertible bonds pricing model is expounded, including simply combined model, simple margrabe model, exact single-factor pricing model and exact double-factor pricing model. The advantage and disadvantage are analyzed. Secondly, the convertible bonds pricing model is expounded, including simply combined model, simple margrabe model, exact single-factor pricing model and exact double-factor pricing model. The advantage and disadvantage are analyzed.Next, some problems in Chinese convertible bonds pricing are proposed, and the most proper pricing model are chosen and modified based on the true fact of Chinese convertible bonds market, considering the factors of dilution and risk rate premium.Finally, the empirical research on the convertible bonds is made in the paper, simply combined model with considering precise single-factor pricing model of credit risk, and theoretical pricing of 28 convertible bonds listed in shanghai and Shenzhen stock exchange was made through excel and Matlab. Through the deviation between the two theoretical values of pricing model and the actual market price, it is found that at present, there have not been some obvious irrational factors in Chinese convertible bonds market to some extent.