Pricing Of Convertible Bonds

Convertible bond is a more complex financial derivatives. First, it is a bond and has the general characteristics of bonds. For the purposes of issuing company, It can be used as financing instruments; For investors, It is an investment tool with periodic interest payments. Next, it is different from corporate bonds. Under certain conditions, It can be converted, Redemption, call, etc. Because of this, relative to corporate bonds,Convertible bonds is a more complex financial derivatives. And the pricing process of it will be more complex than the corporate bond.Many scholars at home and abroad has Studied pricing process of convertible bond. Because convertible bonds with the properties of conversion、redemption and call. This makes the process of convertible bonds and American options pricing has some similarities. Because the American option can be executed at any time. And the conversion, Redemption, call terms of convertible bonds makes it possible to advance the implementation. Seventies of last century, BS equation makes the option pricing has become possible. After that, Foreign scholars study the pricing of convertible bonds also entered the rapid development stage. In the course of pricing convertible bonds,they based on the BS equation and the boundary conditions of convertible bonds to give pricing. There are three convertible bond pricing algorithms:Finite difference method, Monte Carlo simulation, binomial tree. Finite difference method which is often used, Monte Carlo model used for pricing European options.In the pricing process of convertible bond. Early models choose the company’s value as the variable, But the data of the company’s value is hard to obtain. Therefore, later appeared to choose the stock price as the variable. For instance, Tsivioritis & Fernandes (1998) model and the Davis & Lischka (1999) model. DL (1999) model includes the stock bankruptcy jump. But China’s stock market is facing bankruptcy and liquidation of the company really is almost no. Therefore, the model used in the pricing of convertible bonds in China is not very suitable. In this paper we choose TF (98) model, And make the convertible bonds with the boundary conditions applicable to the specific situation. TF (98) model using the finite difference method for the pricing of convertible bonds, In this paper, we choose the different approach to price the convertible bonds, the Binomial tree.The main structure of this paper is as follows:The first chapter, Introduce the domestic and international development of convertible bond market. And reviewed, analyzed and summarized the convertible bond pricing model. Chapter II of the convertible bonds for a brief introduction and analysis. The third chapter introduces the convertible bond pricing theory which is need. Empirical Part IV, It introduces some of the parameters needed to estimate, And specific evidence process. Chapter V, Conclusions and Outlook...