Theoretical and Applicable Research on Convertible Bonds of Binary-Pricing Model-Based on Merton Risk Pricing Model

The paper constructs the binary tree form of risk-based pricing model for convertible bonds based on the Merton model and uses the "risk burden rate" that shows the magnifying of convertible bonds to the company risking value. The model is characterized by equity investors and (generalized) game between the convertible bond investors, and achieves a balanced process, and thus achieves a balanced condition of the (generalized) convertible bond prices. Compared with the traditional BS model, this model has the theoretical base and practical operability.