碩士 國立高雄第一科技大學 金融營運所 95 The study prices convertible bond by Lattice Approach and uses simple BGM model to approximate interest rate stochastic process. The study erases correlation between the stock return and interest rate by orthogonalization in order to decrease complexity of pricing model. We build single factor interest tree and two factors stock price tree. According to each node’s stock price of lattice and clauses of CB calculate cash flow of each node. By discount we can estimate price of CB and assume firm will be default or not default at each node. By considering interest rate process, stock process and default status, we can construct the convertible bond pricing model, and as CB price as given to find out the implied default probability of CB. The study discusses the relation between implied default probability of CB and Taiwan Corporate Credit Risk Index (TCRI). Therefore we understand rationality of implied default probability of CB in the study. We use sensitivity analysis with price of CB an