Study On Convertible Bonds Valuation Under Stochastic Term Structure Of Interest Rate

Convertible bond is an important financial product in recent world financial market, with a long history since the 19^th century. Convertible bonds entitle investors a kind of right to choose either holding to maturity in order to receive fixed income, or converting the bonds into ordinary shares of the issuer company, which is very flexible for the investors. And convertible bond is a complex bond derivative with various options, so study in this field intensively is very popular in academia.In China security market, convertible bond is a new product since 1990's, and it is only about 10 years, since Chinese scholars took attention to the pricing methods of convertible bonds. So it is meaningful to study this problem, in the present economic climate that Chinese government endeavor in regulating finance institutions and promoting the development of corporate bonds market.At first, this thesis introduces and analyzes two parts which are important to the convertible bonds valuation: option valuation theories and term structure models. The mainstream option valuation methods include Black-Scholes Option Valuation Model, Binomial Option Pricing Model, Monte Carlo method and Finite-difference method. And the paper analyzes something about term structure of interest rate, such as traditional interest rate term structure formation theory, Equilibrium Models and No-arbitrage Models. After that, it discusses several main ideas and models of convertible bonds pricing. Then, using above models and methods, the thesis establishes a convertible bonds pricing model under stochastic term structure of interest rate. At last, it prices Nanshan convertible bond listing in Shanghai Stock Exchange with the above model, and evaluates domestic market efficiency briefly.The pricing model putting forward in this thesis is not only taking both two important factors stock price and interest rate into account, but also easy to understand and calculate, so it is very suited to value convertible bond products in real investment transaction.