Pricing Model of Convertible Bonds with Interest Rate Risk and Its Empirical Research

On the basis of analyzing the theoretical and empirical research of convertible bonds pricing models,a new model,stock-based binomial-tree model,was proposed by introducing interest rate risk and combining with the characters of Chinese convertible bonds.Also,the model was used to carry out the investigation of the pricing of 31 convertible bonds on the Chinese convertible market.The empirical analysis shows that the observed market price for the analyzed convertible bonds are on average 6.82% lower than the theoretical values.The difference is less than those obtained by other models.