Convertible Bond Pricing in Chinese Transportation Industry : A Comparison Methods Between Binomial Tree model and Black-Scholes Model

One bond type that can lower financing costs for the issuer is a convertible bond. Additionally, its characteristic with option value gives investors access to high-yielding, low-drawdown, and superior investment instruments. Exactly, convertible bonds have a strong market appeal to investors. In recent years, the issuance scale of convertible bonds has continued to expand, and its share in the bond market has gradually increased. Fair pricing is essential to maintaining the convertible bond market’s smooth operation. In light of this, the convertible bonds in the transportation sector listed on the Shanghai Stock Exchange are chosen for this article. Following the acquisition of the fundamental data pertaining to convertible bonds, the bonds are fitted into the bond list using the Black-Scholes and Binomial Tree models. The theoretical value is then priced empirically after other pertinent factors have been duly taken into account. Comparing the estimation with their actual values to obtain the efficiency results, which indicates that Black-Scholes model yields a more accurate estimation than any Binomial Tree model with preset step sizes. The holistic undervaluation means the favorable sentiments of investors towards it. In summary, the contribution of pricing projects to the operation of underlying industries and the economy boost inspired.