The Pricing of Convertible Bond under Different Provisions: A Refinement to the Black-Scholes Modified Model

In view of Chinese regulations on convertible bond and international conventions, the convertible bonds in China's market always contain three additional clauses, such as call provision, put provision and price special modification clause. These tacks have great impacts on constructing pricing model for this specific bond. This paper focuses on this issue, given different boundary for each provision. Dividing the value of convertible bond into two parts, barrier option value and pure debt value, is an effective method to calculate more accurate. By using a Black-Scholes modified model with boundary condition, we get a proper value of the option part. Furthermore, in experimental part, we introduce a new method to test the model effectiveness, price channel, checking the pricing results in a reasonable price interval. The results from this research can be price bond more precise and get more information from different values.