Research On Domesitic Thoretical Pricing Model For Convertible Bond And Empirical Study

Convertible bonds as a new type of hybrid financial instruments. Convertiblebonds has stocks、bonds and options nature which has become an important part intoday’s financial market. Because investors invest convertible bonds can has not onlyminimum guarantee value but also the possible benefit when the stocks rise, besidesfor financiers can through convertible bonds’ lower rate to financing, also can reducethe pressure by equity dilution. So study on convertible bonds pricing for bothinvestors and financiers has practical significance. Convertible bonds is still in theearly stages in China, it can enhance the financial markets participators’understanding by study the pricing of convertible bonds.This article first describes the convertible bond pricing research at home andabroad, the definition of the convertible bond, then introduces its value and marketdevelopment. Analyze the effect of additional clauses in his contract on its pricing,compared the Black-Scholes model in analytical methods with the binomial treemodel in numerical methods is good or bad. Because convertible bond options can beviewed as an American call option, we chose the binomial tree model as a basicpricing model of convertible bonds, and pass the interest rate term structure of interestrates and RGM-EGARCH model separately to determine the risk-free interest rateand future volatility. The value of convertible bonds will be divided into two parts:risk part and risk-free part. We select the risk component in addition to consideringthe risk-free interest rate plus the credit risk, and for the risk-free interest rate discountfor risk-free part. We use the push down method in each node to calculate thetheoretical price of convertible bonds in the binomial tree, In positive selection of fiveconvertible bonds: an empirical study on stock exchange and made in the last400trading days of the theory of price and market price comparison chart to find marketprices higher than the theoretical price, analyses the causes of the price deviation,bases on these puts forward a number of improvement measures.In general, this paper presents a study of the value of convertible bonds of thebasic analytical framework, of course, there are also many flaws, for example, withoutregard the convertible bond dilution of share capital and the complex effects ofinterest rate and so on, also need researching at a later time.