A Convertible Bond Pricing Research Based On Investor Sentiment

Under the framework of behavioral finance,this paper takes investor sentiment into pricing model of convertible bond and discusses the risk measure. In the course of analysis, we set up research systems from simple to complex. First,we discuss the most basic convertible bond and the risk measurement. Then, we study the redeemable convertible bond and the risk measurement. The results show that if investors express over-optimism about market discount rate(share price), the basic convertible bond price will be over-estimated. Conversely, the price will be under-estimated. If investors express over-optimism towards volatility of stocks, the basic convertible bond price will be under-estimated. Conversely, the price will be over-estimated.As long as investors appeared to serious irrational towards volatility of stocks, the redeemable convertible bond price will be under-estimated. In most cases, if investors express over-optimism about share price, the redeemable convertible bond price will be over-estimated. Conversely, the price will be under-estimated. But alone with the degree to strengthen, the redeemable convertible bond value will also be under-estimated.