The introduction of credit risk pricing of convertible bond

Convertible bond is a relatively new financial innovation in China's stock market in recent years.It is a hybrid financial products,which possesses the characteristics of option and bond,with the dual function of financing and hedging.Regardless of the issuer or investors,the research on the pricing of convertible bonds has its theoretical and practical significances.First,this paper introduces the typical Black-Scholes Option Pricing Model,and then uses the model to do a preliminary study on the China Merchants Bank convertible bonds which introduce credit risk.After calculating,it can be found that the theoretical price of convertible bonds was significantly higher than its issue price on the listed first day.Finally,this paper combined the particular of the convertible bond market in China,pointes out why the theoretical price is higher than the issue price.