Binomial Tree Model Of Convertible Bonds And Analysis Of Pricing Errors

In this thesis,we use the binomial tree models to evaluate the price of convertible bonds in Chinese market between January 1st,2010 and December 31st,2017.The pricing models include two-factor binomial tree model with risk-free interest rate,stock price and default breaches,two-factor binomial tree model with risky interest rate and stock price,one-factor stock price binomial tree model with risky interest rate discounted and one-factor stock price binomial tree model with risk-free interest rate discounted.The results of pricing errors imply that the first model above has the best performance in average level and the sensitivity of parameters implies the robustness.Then the pricing error is used as the dependent variable,some variables as the regressors,which are related to the macroeconomic condition,convertible bond market condition,cooperate management condition and bond liquidity.The linear regression model and panel data are model applied to analysis the average and individual pricing errors respectively.As a result,in China,We find that the convertible bonds tend to be overvalued if the stock market performs well or the conversion premium is high.But they may be undervalued in bear market.