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Research on Pricing Convertible Bonds Based on the Complete Decomposition Method

Author: DongDianHua
Tutor: ZhangDaiJun
School: Zhejiang University of Finance
Course: Finance
Keywords: Convertible bonds Completely disassembled method Pricing error rate The terms of the conversion price correction
CLC: F224
Type: Master's thesis
Year: 2012
Downloads: 35
Quote: 0
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Abstract


Convertible bonds as a complex financial derivative products, and has become an important tool for the investment and financing, and thus properly assess the value of the convertible bonds are very important for issuers and investors. Because of this, the pricing of the convertible bonds has been one of the hot research field of micro-finance. Convertible bonds involve both the complex mixture of bonds, stocks and options, derivative securities, its pricing has been one of the difficulties of the related fields. Foreign pricing studies generally use a numerical method is too complicated, but the terms of the domestic convertible bonds, the use of numerical methods there is the problem of precision. In a variety of methods, pricing efficiency and most accurate analytic method. Characteristics with elements from the convertible bonds, the value of the convertible bonds constitute its influencing factors, and then a brief Pricing Convertible Bonds representative model, and their respective advantages and disadvantages a comparative analysis. Then this article learn the basis of the research results at home and abroad, with a redemption for the specific characteristics of our convertible bonds, as the stock price of the underlying asset pricing and martingale pricing method based on risk-neutral pricing principle, completely disassembled, deduced soft constraints and credit risk, interest-bearing convertible bond pricing analytic formula. On this basis, combined with the actual situation of domestic convertible bond market, the pricing parameters shall be appropriately amended. First, the introduction and the stock negatively correlated positively correlated with the stock price volatility of credit spreads adjustment factor, instead of fixed credit spreads and the dynamic credit spreads calculated; Second, starting from the financial crisis cost theory combined with China postpone redemption widespread phenomenon, draw the actual redemption trigger price of convertible bonds. Also a measure of the the conversion down amendments to the terms of the value of the rough method, which obtained the theoretical price of convertible bonds conversion downwardly revised terms, the analytic formula has higher accuracy. In the empirical part, the paper is not, as most of the other literature, just select a single or the overdue convertible bond sample, but select all six convertible bonds is in the trading period and meet certain conditions sample. Compare the theoretical price and the market price before and after the correction of the calculated parameters, derived pricing error rate of the two groups, and to compare the two sets pricing error rate statistics derived parameters of this article is corrected with a certain rationality. Pricing error rate of the two groups are small, to verify the validity of the analytical expression of the pricing of this article and accuracy. Then through the theoretical price and the market price of the cointegration test, we find, both cointegration relationship exists, the theoretical price and the actual price of the same trend in the long run, once again verify the pricing efficiency of the method in this article. Followed from the three aspects of the model, sample and market explain the reason for the existence of the pricing error, the last part of the empirical lag factor by introducing a pricing error term, the model prices more predictable. The last part of this paper presented the results of research and inadequate, and gives several policy recommendations.

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CLC: > Economic > Economic planning and management > Economic calculation, economic and mathematical methods > Economic and mathematical methods
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