Are convertible bonds efficiently priced in the Chinese market? Insights from a simulation-based pricing model
| dc.contributor.author | Long, Shuyi | |
| dc.contributor.supervisor | Zhang, Xuekui | |
| dc.date.accessioned | 2025-06-20T19:45:13Z | |
| dc.date.available | 2025-06-20T19:45:13Z | |
| dc.date.issued | 2025 | |
| dc.degree.department | Department of Mathematics and Statistics | |
| dc.degree.level | Master of Science MSc | |
| dc.description.abstract | This study investigates the pricing efficiency of Chinese convertible bonds and presents evidence of systematic mispricing. To support this analysis, we develop a pricing framework based on the Least Squares Monte Carlo (LSM) method, tailored to reflect contractual features unique to the Chinese market. Using this model, we simulate fair values over the full lifespan of 154 convertible bonds issued between 2015 and 2019 and compare them to observed market prices. The model-predicted price curves generally align well with observed price patterns, demonstrating the robustness and practical value of our approach. However, we also find that trading prices occasionally deviate from model-implied values by more than 10%, with these deviations exhibiting consistent patterns rather than random fluctuations. Furthermore, we demonstrate that simple trading strategies—both at the individual bond level and at the portfolio level—can exploit these discrepancies to generate substantial excess returns. These findings suggest that the Chinese convertible bond market is only partially efficient and highlight persistent arbitrage opportunities, underscoring the importance of market-specific valuation models in emerging financial markets. | |
| dc.description.scholarlevel | Graduate | |
| dc.identifier.uri | https://hdl.handle.net/1828/22426 | |
| dc.language | English | eng |
| dc.language.iso | en | |
| dc.rights | Available to the World Wide Web | |
| dc.subject | Convertible Bonds | |
| dc.subject | Monte Carlo Simulation | |
| dc.subject | Least Squares Regression | |
| dc.subject | Embedded Options | |
| dc.subject | Chinese Market | |
| dc.subject | Pricing Model | |
| dc.subject | Stock Volatility | |
| dc.subject | Trading Strategy | |
| dc.title | Are convertible bonds efficiently priced in the Chinese market? Insights from a simulation-based pricing model | |
| dc.type | Thesis |