The Research On Convertible Bonds Theory

The capital market in China has developed for decades and is maturing gradually. Convertible bonds are one kind of new product derived from finance and such market is flourishing. Convertible bonds have the property of both bond and stock option. Such blending character of convertible bond adapts to the request of investor and financing individuals. Its existence brings some benefits to both sides of financing, which can't be achieved by the stock or bond alone. Although convertible bonds have the advantages to attract the investor and financing individuals, it is one kind of derirved financing tool which is rather complicated. The varing of its value is related to the factors in bond market and stock market, so pricing of convertible bonds plays one significant role for both the issuers and the investors. Only reasonable pricing can make better use of this kind of financing tool to achieve the goal of capital asset application.In this thesis, we retrospected the history about the development of convertible bond and summarized the research in the field of pricing in domestic and overseas areas. Then we analyzed the property of convertible bond, composition of value and corresponding item. Based on the martingale pricing theory when the ratio of interest is constant, the main work in this thesis is the discussions about the martingale pricing model for convertible bond under the condition that the ratio of interest obey finite discrete time Markov chain. Based on this, we gave out the martingale pricing model for convertible bond which has purchasing and selling items. Then we discussed the effect of special downwards revising of items to the value of convertible bonds. After giving out the pricing model, we verified the above model with the example of Tanggang convertible bonds and discussed the finacial function and investing value of convertible bonds , one tool derived from finance. The last section is the summerization of this thesis, which is about the research context and some opinions about the futher research direction.