Theoretical Analysis On The Pricing Of Convertible Bonds In Chinese Financial Market

Convertible bonds are a kind of hybrid financial instruments including elements of stocks and bonds. It provides the company with a more effective and flexible method than issuing the stocks or bonds to finance. To the company, issuing the convertible bonds is the same as delayed stocks financing. It can lower the cost of financing and reduce the effect of diluting the owner's equity and also have function of evading tax. To the holder, convertible bonds not only ensure their profits but also offer him/her the rights to share the profits coursed by the rising of the company stocks. It also can avoid some limitations of the policies. The lacking of creative ability in financial instruments and the high ratio of stockholder's rights to the financing are the two main problems that we are facing. The convertible bonds provide a very important way to solve these problems and play a key role in steady the stock market. In recent years, although it is well developed, it also limited by many factors and there are still many problems in issuing the convertible bonds. The experiences abroad show that reasonably pricing the convertible bonds is one of the key factors to maintain the constant and healthy development of the market. The present thesis starts the research on the Chinese convertible bonds market from the problem of pricing the convertible bonds.This thesis has fully analyzed the characteristics of the items, structure of the Chinese market and the outer environment, and develops a stock-based pricing model with exogenous credit risk that accounts for most of the convertible bonds on Chinese market. The studies on 12 convertible bonds on SSE and SZSE markets of China are also carried out by using daily price of a period of 2 weeks. The analysis shows the most theoretical values of the convertible bonds on Chinese market is higher than the observed market prices. Further research shows the reason that why the convertible bonds are underestimated. At the end of the thesis, the more detail reasons are analyzed and some suggestions are given.