Academical And Empirical Analysis Of Convertible Bonds Issued By Chinese Listed Companies

A convertible bond is a new type of financial derivative product with debt-and equity-like features, which has become an important investment tool in capital markets. Chinese convertible bond market, initially started in1991, is currently playing an essential role in stock markets after nearly two-decade development. Exactly evaluating the value of convertible bond is of great significance to the investors, the issuers and the convertible bond market as a whole. In this thesis, a theoretical and empirical study is done on the pricing of convertible bonds by integrally using some methods such as financial modeling, partial differential equations and binomial method.First of all, the value of convertible bonds is analyzed based on research on the current features of convertible bonds in China. The fundamental elements and characteristics of convertible bonds are depicted; the value and affecting factors of convertible bonds are presented. It is found in this study that the greatest difficulty in evaluating the value of convertible bonds lies in determining the option value included in the convertible bond. Also, this thesis depicts thoroughly some option pricing methods such as Black-Scholes Model, Binomial Tree Parameter Model and so on.Secondly, four convertible bond pricing models are illustrated in this thesis, including Black-Scholes Model, Binomial Tree Parameter Model, Monte Carlo Method and Finite Difference Model. A comparative analysis is made on the advantages and disadvantages of these models. Black-Scholes Model and Binomial Tree Parameter Model are chosen to be the methodological basis for the empirical analysis of the present study.Finally, the empirical study chooses Golden Eagle Convertible Bond and Tangshan Iron Convertible Bond as the case. The data is collected within100consecutive trading days after the studied convertible bonds enter the conversion period. The theoretical pricing of the convertible bonds is made through Excel based on Black-Scholes Model and Binomial Tree Parameter Model. Then, a comparison is made between the theoretical pricing model and the actual market price, and the reasons for the deviation are explored. It is found from the deviation that Binomial Tree Parameter Model is more suitable for the pricing of China’s convertible bonds at present. At the end of the thesis, some constructive suggestions and measures are proposed on China’s convertible bond pricing from the aspects of convertible bond market’s improvement, designs of typical terms, and the pricing model choosing and improving.