The Analysis On Pricing Of Convertible Bonds Based On Black-Scholes Model

With the continuous development of economy and society,China has gradually deepened the reform of financial system,expanded the opening of the financial industry.A large number of innovative financial products have been introduced into China's capital market.Convertible bond is one of them.After 20 years of continuous development,China's convertible bond market has developed from the era of"convertible bonds survive in name and none succeed in converting shares" to an important emerging convertible bond market with a issuance scale of more than 70 billion yuan this year.With its unique advantages,convertible bonds are attracting more and more attention from enterprises and investors.Convertible bonds not only have the characteristic of "repaying principal and paying interest,locking in yield" of ordinary bonds,but also can be converted into corresponding stocks at the agreed price at any time after six months of the issuance date.Therefore,when the stock price rises,investors can also get profit from the rise of stock price.The characteristic of "debt+equity" of convertible bondmakes it difficult for academia and industry to price convertible bond accurately,which affects the development of convertible bond market.In this background,taking Hailan Convertible Bond(110045.SH),which is listed on Shanghai Stock Exchange as an example,this paper discusses how to price convertible bonds based on Black-Scholes model.Black-Scholes model is often used in European option pricing.For the reason that data it needed is simple and easy to obtain,The model has been widely used in academic and industry.Considering the current situation of China's financial market and the clause of convertible bonds,this paper analyses the feasibility of applying Black-Scholes model to the pricing of convertible bonds in China.In the calculation of key variables of Black-Scholes model,this paper determines the risk-free rate of return based on the Term Structure Model of Interest Rate,anddetermines the annual volatility of positive shares by the Realized Range Volatility.Thenthe paper creatively introduces the Downward Amendment clause of convertible bond to calculate the theoretical price of convertible bond,and compares it with the actual price.Finally,the paper analyses the error between the theoretical price and the actual price of Hailan Convertible Bond.This paper studies the reasons why the real price is lower than the theoretical price from the perspective of the macro financial market and the model itself.From the macro point of view,the convertible bond market is not active,so the liquidity premium is high;furthernore,the difference between the investor in the convertible bond market and the stock market results in the noise trader risk,so the holders of convertible bonds require higher compensation for the risk.From the view of the model itself,there is a deviation between the assumptions of Black-Scholes model and our financial market.In addition,the omission of important factors such as financial leverage and the effect of dilution is also an important reason for the deviation.Finally,this paper summarizes the problems still existing in the pricing of convertible bonds and puts forward some pertinent suggestions.Our coumtry still has great prospects in expanding the opening of financial market,introducing institutional investors and lowering the issuance threshold of convertible bonds;there are still some unreasonable aspects in the convertible bond clauses;in the future,we can combine other models with Black.Scholes model,add other factorsaflecting convertible bond to the model,such as financial leverage and equity dilution.It is hoped that this paper can help investors understand the convertible bond market and the pricing principle of convertible bonds.While strengthening supervision,relevant institutions can improve the environment of the convertible bond market to attract more investors participate in convertible bond market,and jointly promote the development of China's financial derivatives market.