Influence of the downward revision clause on Chinese convertible bond pricing

WANG Yintian; MOON Jiyoung

doi:10.16511/j.cnki.qhdxxb.2018.22.014

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Journal of Tsinghua University(Science and Technology) ›› 2018, Vol. 58 ›› Issue (1) : 108-112. DOI: 10.16511/j.cnki.qhdxxb.2018.22.014

ECONOMICS AND MANAGEMENT

Influence of the downward revision clause on Chinese convertible bond pricing

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Abstract

Chinese convertible bond market prices are higher than model prices, indicating "market premiums" in the market. The paper shows that the downward revision clause may increase the accuracy of model prices and reduce the "market premium". The Tsiveriotis and Fernandes pricing model is used with trigger conditions for the downward revision, call, put and conversion clauses. The downward revision clause reduces the "market premium". High conversion ratio, moneyness and stock volatility in a bull market increase the option value of convertible bonds and reduce the pricing error. Years-to-maturity and market timing are related with the market premiums and affect the pricing error.

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convertible bond pricing / downward revision clause / influential factor

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WANG Yintian, MOON Jiyoung. Influence of the downward revision clause on Chinese convertible bond pricing[J]. Journal of Tsinghua University(Science and Technology). 2018, 58(1): 108-112 https://doi.org/10.16511/j.cnki.qhdxxb.2018.22.014

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