The Pricing Of The Convertible Bond Considering The Affined Transaction Costs

Convertible bond is a complex tool which has dual characteristics of bonds and stocks. For those issued companies, its interest rates are lower than ordinary bonds. For its investors, such bonds can not only guarantee the basic bond interest, but also obtain the potential gains when shares rose. Therefore, the convertible bond develops quickly in recent years. However, like the option, convertible bond is also an exotic product and only have nearly two decades in our country, so the pricing of convertible bonds is weak in China.First, the paper considers the development of the convertible bond market in China. Then combined with the existence of a minimum transaction costs, the paper uses the affine transaction costs to replace the equal proportion transaction costs of old model. Although the derivation process of is more difficult, but the new model closes the actual transaction costs. In addition, in order to validate the effect of our model, the paper selects Wanke bonds as an empirical research. The paper compares the commission costs of the old and the new model, the results showed that our model is better than the old model in the aspect of error. On the basis of the empirical results, this paper presents some recommendations to improve the minimum transaction costs.This paper have five parts, the first part is a review of the development of the convertible bond pricing theory. The second and third part introduces the basic concepts and methods of the convertible bonds pricing. The fourth part deduced the affine transaction costs model on the basis of Ito Lemma, no arbitrage pricing theory (APT) and option pricing theory (OPT). The fifth part compares the original model and the proposed model in the aspect of error.