China Convertible Bond Pricing Methods And Terms Of Design

Convertible Bond is an extremely complex credit and interest rate derivative products, in addition to the general claims, but also contains a lot of options. These options must be exercised under certain conditions, these conditions are to be issued depends on the terms of the design. As the issue have relatively liberal provisions of the design space, it makes a great issue to have the freedom to design the terms of this play to the extreme right in order to work out the best have their own terms. However, as equity investors and the status of the issuer, in the exercise of their options when there is a complex relationship between the game, the issuer would be impossible to design the terms of the absolute best of a strong, and can only be fair game in search for The best balance. This requires the issuance of convertible bonds in pricing and distribution strategy choice of a higher technical level and even the arts. At the same time, as a result of convertible bonds included in the options is the complex structure of the singular option. Belonging to the American-to-equity options, and the American option has been difficult to accurate pricing for its analytical solution. As a result, a universal pricing formula and make the issue to achieve the desired objectives at the same time not let ordinary investors into the issue of the terms of theoretical study and practical issues of common concern. In this paper, selected aspects of this study is that our country would like convertible bonds and reasonable pricing and distribution strategy to provide choice of valuable reference point.In this approach, the first use of the black-scholes option pricing theory, the assumption stock price volatility model and amendments to the model of China's model of interest rate volatility, risk-neutral structure of the portfolio in order to get the convertible bonds to meet the model of partial differential equations. In the structure of the model to evaluate the model revealed the existence of too complicated and difficult to obtain analytical solution. In order to be a relatively simple, intuitive pricing model, for the first time in this article try to use actuarial methods for the pricing of convertible bonds, in order to simplify the processing, the value of the convertible bonds will be understood as a simple-to-equity swap and the value of bonds and the value. In the amendment proposed by Rydberg and Bladt actuarial formula based on the assessment from the actual loss and the corresponding probability distribution point of view of quantitative research options part of the value of the convertible bonds, was based on actuarial methods of convertible bonds some of the options pricing model. At the same time, based on the actuarial equivalence principle, every time a certain event of default probability and the time to pay the bond in cash flow, debt to be paid in the future cash flow of the actuarial present value of the convertible bonds can be part of the actuarial price. Through the two parts of the value of the model, the convertible bonds have been pricing model. By comparison of the two methods and found that actuarial methods to overcome to a certain extent based on a risk-free arbitrage, thought to be copying the model assumptions BS strict formula is derived relatively less cumbersome and at the same time, some of the convertible bonds of the risks through Actuarial approach to better reflect.