The Empirical Research Of Convertible Bonds Pricing Based On The Black-Scholes Pricing Model

Convertible bonds, a special kind of Hybrid financial instruments, could be able to mix the both attribute of bond and stock. In comparison of bond, to decrease financing cost, publisher could issue lower interest rates than the general bond.Compared with stock, when the stock price became lower than the conversion price,investor tends to refuse to do the convert works, in order to get the maturity of principal and interest as the under income. Both of the above contributes to the popularization if the convertible bonds recent years. Nowadays, it has become a norm for the international financial market to stay information asymmetry, which has become a pressing matter of the moment to research the pricing strategy that this paper actually would do, based on Black-Scholes pricing model.The significance of this topic lies in that, it is extremely important to clarify the convertible pricing and it’s rationality to adapt to accelerated process of China’s convertible bonds market, in particular for the realization of win-win mode for both publishers and investors. At the beginning, this paper has compared the distinguish between domestic and international convertible bond by researching it’s history and process. Then, by introducing the basic elements, characteristics, theoretical concept,this paper introduced its pricing complexity resulted from its dual nature, also the adding of additional terms and conversion option on the pure bond. This paper also raised 3 key elements of convertible bonds- discount rate, expiration time, interest,together with influence factors of the option- stock price, implementation price,volatility of stock price, risk free interest rate, maturity, expected dividend during option period. Finally, this paper has expanded the function of Black-Scholes model,combining with case study of traditional methods, working out the convertible bond pricing model to adapt to the current situation of China, as well as several opinions and suggestions to domestic bond market.This paper selected 19 convertible bonds published in recent 5 years, relatively complete in additional clauses. After researching on all relative data in 100 days after 11.21.2013, this paper has proved the expanded Black-Scholes pricing model could be qualified with domestic convertible bond pricing.