Investment Value Analysis Of Exchangeable Bond

Exchangeable bond is a new financing instrument emerging in the bond market in recent years.It confers investors the right to convert bonds into stocks during exchange period.It is this right that makes exchangeable bonds have dual attributes of bonds and call options.The earliest application of exchangeable bonds was in 2008.Regulators hope to use this new financial instrument to alleviate the impact of unlocking the restricted shares on the stock market.However,due to the lack of corresponding policy supervision and investment environment,the development of exchangeable bonds has fallen into silence.In 2013,in order to broaden the financing channels of SMEs,exchangeable bonds began to be mentioned again.With the successful issuance of "13 Fuxing Bonds" and "14 Baosteel EB",exchangeable bonds experienced in a golden period of their own development.In 2016,the issuance of exchangeable bonds was nearly three times that of 2015.Exchangeable bonds were no longer limited to help issuers to finance with low cost and reduce stock holdings,but began to play more roles in the capital market.But investors need to be alert that behind the rapid development of exchangeable bonds,the first default has happened.Investors are beginning to realize that this new investment instrument brings investors not only high return,but also considerable risk.For this new financial derivatives,this essay wish to analyze its investment value by the qualitative analysis on issuer's management condition and bond clause and quantitative analysis on valuation and risk measurement.According to this analysis,the investor may have a reasonable judgment of EB's investment value.This essay includes five parts.The first part explains the background and meaning of this research topic.The second part introduced some concepts of exchangeable bond include definition,function,clause settings and market condition.This essay choose the first public offering exchangeable bond '14 Baosteel EB' as the research object.The third part makes the introduction of '14 Baosteel EB' and investment analysis framework.The forth part is to make an investment value analysis on '14 Baosteel EB'.It includes three modules called equity and bond attributes judgement,bond valuation and risk assessment.Firstly,makes the judgement from the perspective of bond issuer's incentive,clause settings and the management condition.Then binomial tree pricing method is applied to make the quantitative analysis.Finally the VaR method is applied to finish the risk assessment.The fifth part is the summary of our research and corresponding suggestion.The past research always focused on the issue of bond.The innovative point of this essay is the complete investment analysis framework which includes qualitative and quantitative analysis.To make the research more reasonable,the essay has add some verification analysis.The research also has some shortcomings.For example,the equity value of exchangeable bond was influenced by many factors during a long term.As a result,the research range about influence factors could be enlarged to obtain a more precise judgment.