Pricing Model Of The Conversion Price Under General Equilibrium

Due to the convertible bond issuer is artificial joint-stock company, a reasonable inference is that before and after financing the stock. Market should be in equilibrium. This paper defines the optimal conversion price as the price which makes the expectation of payment cash flows into zero. Using the MM theorem under general equilibrium frame, the paper derives optimal conversion price in equilibrium state. For the reason to be compatible with the actual financial behavior, and to obtain numerical solutions, this paper changes the "financing cost is zero" to "financing cost is minimum". By Monte Carlo simulation, this paper uses China’s market data to validate and gives the explanation of empirical results.