A Research On The Rationality Of Exchange Bond Pricing

The origin of exchangeable bonds can be traced back to the United States in the 1970 s.In the following 40 years,in developed regions such as Europe,the US and Japan,EB developed vigorously and a relatively complete system have been formed.However,in China,EBs are still in the initial stage.It was not until 2008 that China Securities Regulatory Commission first proposed the concept of EB,and the country's first EB was introduced at the end of 2014.The domestic EB market is lagging behind,and the research on the pricing of EB is rather scarce.Compared with convertible bonds,EB does have its disadvantage,but with its unique advantages,it can make the issuer and the investment get win-win.Therefore,it is necessary to study the rationality of its pricing.By comparing the pricing methods of financial derivatives,an improved Monte Carlo simulation method is chosen.This paper selected "15 Dongji 01" as a case,because it is typical and one of the first several EBs issued successfully in China.On the other hand,its success enables the issuer to participate in targeted placement to make the arbitrage of reducing holdings,also the investors obtained the excess return from the share swap.Based on the basic situation of the case,this paper introduces the EB issuing motivation and environment,and then analyzes the case from three aspects,including influencing factors in pricing,model test and simulation analysis.It draw 4 conclusions: first,investors have a certain overvaluation of their EB;second,the motivation of issuer lies in reasonable reduction of holdings and optimization of capital management;third,the cost of financing from EB is relatively low;fourth,investors can use EB for risk management investment.Finally,after analyzing the cases,this paper proposes some inspirations on the problems existing through the development of EB: improving the supervision mechanism of EB issuance;developing the stock option market as soon as possible to promote investors making rational risk investment;strengthening oversight of secondary market issues such as non-public issuance.