Empirical Research on a Pricing Model of Convertible Bonds in Chinese Markets by Introducing Credit Risk

This paper proposes a pricing model for convertible bonds based on the Least-Square Monte Carlo simulation,which allows us to better capture the complexity of real-world convertible bond such as the characteristics of clause options of various embedded path-dependence trigger conditions.By using the convertible pricing model proposed,we calculate the theoretical prices of 11 convertible bonds in Shanghai and Shenzhen markets and comparing them with market prices.The results show that the average price error ratios of time series and cross-region are both lower than 4% in this model and that there is a high fitting degree between the model prices and market prices,which proves that the convertible bond pricing model proposed is practical and can provide theoretical support for actual investment decision.