Valuation Of Convertible Bonds

With the increasing share of convertible bonds in China's financial markets,policies have encouraged listed companies to issue convertible bonds,with the number of convertible bonds traded growing by nearly 18 points in the fourth quarter of 17 years alone.Therefore,the pricing of convertible bonds is also particularly important.Based on the convertible bond contract pricing in financial markets,we use hedging principle to construct portfolio,and consider the default factor,and use the equivalent boundary to describe redemption terms and resale terms,so as to obtain the price model of convertible bonds.Then the parameters are calibrated,and the implied volatility and GARCH model are used to calculate the volatility.The interest rate for pricing is given by interest rate swap;Statistics of the same initial credit rating has been issued for 0 ~ 10 years of bonds per year mortality,to estimate the probability of default;The path of stock is simulated by Monte Carlo method,and the time moving window is set to calculate the equivalent redemption boundary and the equivalent resale boundary.Next,the price of convertible bond is obtained by implicit difference method.Finally,considering that the return risk of convertible bond market is larger,we should measure the risk value of convertible bond at the same time of pricing.therefore,we calculate the risk value of convertible bond to provide further reference for investors' transaction.