Pricing Research Of Chinese Convertible Bonds Based On Black-Scholes Pricing Model

The convertible bond is a complex financial derivative with the characteristic of the bond and the stock,being favored by the capital market because of their unique convertible stock attribute.Since the appearance of Chinese financing market in the 1990s,the convertible bonds have become an important financing tool in the capital market.However,compared with the development of the international convertible bonds market,the development of Chinese listed convertible bonds are still insufficient,which not only reflect in the too few issuance of quantities and scopes,but also in the irrationality of system arrangement and issuance clause design.The focus of research on convertible bonds is the exploration of pricing models,Only accurate and reasonable pricing can enable investors to clarify the value and arbitrage space of convertible bonds,thus promoting the development of Chinese convertible bond market.This paper makes intensive study in the pricing models and the methods of the convertible bonds.Firstly,B-S option pricing model is adopted,then considering the dilution effect of convertible bonds on corporate equity,and considering the comprehensive effects of the four additional provisions on the value of convertible bond options;conversion provisions,redemption provisions and redemption provisions.In the empirical research,this paper chooses 15 convertible bonds from many listed convertible bonds in China as sample data for pricing research,not only comparing the value deviation rate between the traditional B-S option pricing model and the extended B-S option pricing model for convertible bonds pricing,but also studying the deviation rate of theoretical value from the first day of issuance and three months of listing of the convertible bonds,thus analyzing the value deviation phenomenon in the pricing of listed convertible bonds in China.The main research results of this paper are as follows:(1)The B-S option pricing model has a good fitting effect on the pricing of Chinaese listed convertible bonds.Whether using the traditional B-S option pricing model or the extended B-S option pricing model,although the theoretical value of the convertible bonds has a certain pricing error,it basically converges with the actual price trend.(2)There is a significant undervalued phenomenon on the first day of the issuance of Chinese listed convertible bonds.Based on the extended B-S option pricing model,the study found that the theoretical value of the convertible bonds on the first day of listing is greater than the actual price,and the average value deviation rate is 14.58%,there is a significant discount issue phenomenon.(3)There is a long-term value deviation phenomenon in the convertible bond market.By studying the theoretical price of the convertible bonds listed within three months,the study found that large majority of convertible bonds have always been undervalued,and the theoretical value will gradually approach the market price as the remaining period decreases.Value deviations in pricing of convertible bonds mainly comes from the insufficient development of convertible bond market,the lack of short selling mechanism,uniform design of convertible bond terms and the adaptability of B-S option pricing model in China.This paper gives some suggestions for improving the convertible bond market,including establishing appropriate market access standards for convertible bonds,improving the design of issuance terms and so on.In terms of pricing model,B-S option pricing model should not only consider the dilution effect of equity and the option value brought by additional clauses,but also should consider more value-influencing variables,such as the existence of market interest rate risk and credit risk,so that the model itself can be more applicable to the situation of China's convertible bond market.It is hoped that this study will promote investors to further understand the value of listed convertible bonds in China,and encourage issuing companies to innovate in terms design,so as to contribute to the development of Chinese convertible bond market.