Analysis On Influencing Factors Of Pricing Deviation Of Convertible Bonds

Convertible bond is a major component of China’s bond market.As a new hybrid investment and financing tool,it has the advantages of both bonds and stocks.It is an ideal investment and financing tool.By the end of December 2021,nearly 700 convertible bonds have existed in China’s securities market.With the continuous improvement and development of convertible bond market,the research on convertible bond pricing model and pricing influencing factors has also attracted the attention of many scholars.As a complex financial derivative instrument,convertible bonds contain embedded options such as conversion,redemption,repurchase and downward revision,which makes its pricing very complex.The academic circles have put forward various pricing models,and the deviation between the theoretical price and the market price is large,which is usually manifested as a "discount phenomenon",which may be the result of the combined action of internal and external factors of convertible bonds.In this context,the empirical evidence on the impact of convertible bond pricing deviation is still limited,so it is necessary to study and analyze the influencing factors of convertible bond value deviation.In this paper,245 convertible bonds listed from 2005 to 2021 are selected as empirical samples.In view of the complexity of the additional terms of convertible bonds in China,the least square Monte Carlo simulation(LSM)method proposed by Longstaff and Schwartz(2001)is used to analyze the impact of the volatility of the underlying stock price of convertible bonds and credit risk on the pricing deviation of convertible bonds.The research shows that the theoretical price obtained by LSM method is generally greater than the market price of convertible bonds.On average,the market price is about 4.97%lower than the theoretical price.When the volatility agglomeration of the underlying stock price is considered in the model,the discount rate drops to 3.10%;When the credit risk is considered in the model,the discount rate is reduced to 3.52%.Therefore,after introducing the volatility of the underlying stock price and credit risk,the model reduces the deviation rate of convertible bond pricing and improves the accuracy.Furthermore,based on the inclusion of the volatility of the underlying stock price and credit risk into the model pricing,this paper makes a regression analysis on the influencing factors of China’s convertible bond market pricing from the aspects of individual characteristics and investment risk of convertible bonds.It is found that stock price,conversion ratio and conversion premium ratio have a significant negative effect on the pricing deviation rate,while liquidity,credit rating,value status and volatility of the underlying stock have a significant positive effect on the pricing deviation rate.In addition,from the results of the sample,the convertible bonds with high credit rating have a greater impact on the pricing deviation of the underlying stock price volatility,while the convertible bonds in the virtual value state are more sensitive to the underlying stock price volatility,credit risk and other indicators.