Using a density matrix approach, the nonlinear optical response of conjugated polymers is examined taking into account many-body effects of the excitation process. The formation of charge transfer excitons and the creation of lattice distortions are studied in short polymer chains by solving the self consistent equations of motion for the reduced single electron density matrix and the lattice displacement. The coupling of electronic motions to lattice dynamics gives rise to the formation of excitonic polarons, which can be identified in the femtosecond pump-probe signal.