The Pricing Model And Empirical Investigation To Convertible Bonds

Convertible bonds are complex and widely used financial instruments combining the characteristics of stocks and bonds. It is one of few advanced and creative financial instrument which have been introduced to China in the recent years. It has more content in theory and more advanced skills in practices that compares with our known stocks, bonds and treasures.The paper at first look-backs and analyzes the developmental history and today's conditions of convertible bonds in world and China in brief. The paper also points out the fault of the convertible bonds' market of China. The paper also analyzes and evaluates the pricing model of domestic convertible bond and the foreign convertible bond. On the basic of analyzing the characters and theories, the paper gives the single-factor pricing model by stock price without bonus and with bonus. In this paper, we also give the two-factor pricing model by stock price and interest rate. Due to the probably of the credit risk, we give the two-factor pricing model with credit risk. In consideration of the gauge of the evaluating mechanism of credit risk in China and the present condition of the company, we make an empirical investigation into the price of Min Sheng convertible bond by making use to the two-factor pricing model, and find the error between the market price and theories price. At last, the paper points out the reasons of error' exist. The paper presents some suggestion about how to develop the convertible bonds' market in China.