Convertible Bond Pricing Model And Its Application

Convertible bond is a kind of security deriving from enterprise bond, it composes investor right for assigned period may change bond into the company's stock of certain amount. Because it have the nature of bond and stock simultaneously, raise fund with the function of avoiding risk, convertible bond get the favor of market more and more deeply . Seen from international market, convertible bond has become the important composition of the most financial markets of developed country. Without convertible bond an investment portfolio is regarded as imperfect. Convertible bond, produced in western developed capitalist country last century, had been introduced into the capital market of our country in 1990s. And in last few years its scale has got great development, so it becomes an important supplementary part of the capital market of our country increasingly. For convertible bond develop further it is necessary very much to study for its price. Convertible bond at first compare simple, in financial innovation promote, its form already very rich, which make its pricing more difficult. Since convertible bond being produced, numerous domestic and international scholars had been studying for its pricing. On the foundation of forefathers' research, this paper is to discuss further about the problem of pricing convertible bond. The author is mainly using option price method to research the price of convertible bond with considering the risk of promise breaking, using finite difference method and the representative convertible bond of our country to have gone on really certificate analysis.The content of this paper includes 5 sectors: the first sector has introduced the production and development of convertible bond, and has summarized domestic and international convertible bond pricing theory, has explained the meaning and the research purpose of this paper. The second sector has introduced convertible bond terms and design, has analyzed the feature and the general structure of our country's convertible bond. The 3rh sector lies in mainly reaching convertible bond the general theoretical model of bond price, in this sector, has first looked back financial engineering science as well as the relevant basic pricing theory of financial derivates, has put forward the general model of pricing convertible bond considering the influence of the risk of promise breaking. The 4th part uses finite difference method turn the price of Shanghai airport convertible bond, has gone on really certificate analysis, at the same time turn analyses and compare between market price and the theoretical price of Shanghai airport convertible bond. The final part is conclusion, has made a brief summary for the research of this paper, at the same time discussed the failure of pricing convertible bond of our country combining the research of this paper, and has made some suggestions.