Research On The Listed Convertible Bonds' Pricing In China

Convertible bonds (CB), are corporate bonds, which are issued by a corporation under conditions prescribed by law and can be converted into common shares according to preset conditions in a preset period. It is a hybrid security that retains the characteristics of common corporate bonds, and offers the option of conversion into underlying stock. It endows the right to investors to convert CB into common shares at a certain price in a certain period. In the 1970's, owing to the development of the option pricing theory, we have made great progress in valuing CB. Since it's inception in 1992, it has become one of the most popular financing and investment instruments in China. After more than 10 years of development, our CB market has achieved considerable progress, in scale and in quantity. At present, CB has become one of the leading methods for corporate refinancing.This article analyses the characteristics of conversion and the transformation of each kind of right in the process of conversion. The value of our CB is defined on the basis of Exchange Option theory. This is standard practice throughout the world. I have used qualitative, quantitative, comparative and systematic analysis to value CB. The comparative analysis of B-S model and Exchange Option model shows that the latter can be used for pricing convertible bonds during the issue period. But during the conversion period, there is a large variation between market price and the price according to the two theories.According to the above-mentioned facts, this article regards CB market prices as a series of uncertain figures, and points out the drawbacks of the existing model and revises it on the basis of Set Pair Analysis theory to provide a scientific basis for the valuation of CB. Investors and issuers of CB can use the revised model as a basis for decision making. This article can play a positive role in development of our CB market.This article has five chapters. The first chapter outlines the background, goals, significance, domestic and foreign related fundamental research on this topic. The second chapter introduces the character and regulations of CB and the theoretical basis for valuing CB. The third chapter analyses the compositional value of CB and introduces two basic pricing models for conversion right, B-S model and Exchange Option model. The fourth chapter chooses 13 listed CB in our country as samples to make a comparative analysis with B-S model and Exchange Option model. It shows that the price of the CB with the Exchange Option model is closer to the market price than the B-S model. There is a large deviation between the price prediction of the two models and the market price, especially during conversion time the deviation is larger. I make the Same-Different-Opposite Situation Test for the prices of the two models and the market price on the basis of Set Pair Analysis theory, and revise the two models in conversion time .The result shows that the deviation between the revised model price and the market price is small. The last chapter explains the deviation.