Proceedings of the 3rd International Conference on Bigdata Blockchain and Economy Management, ICBBEM 2024, March 29–31, 2024, Wuhan, China

Research Article

Exploring Pricing Biases in Chinese Convertible Bonds Market: The Influence of Green Bond Policies

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  • @INPROCEEDINGS{10.4108/eai.29-3-2024.2347310,
        author={Yuchi  Cheng and Zhan  Huang and Yue  Yu and Ziqing  Zhou},
        title={Exploring Pricing Biases in Chinese Convertible Bonds Market: The Influence of Green Bond Policies},
        proceedings={Proceedings of the 3rd International Conference on Bigdata Blockchain and Economy Management, ICBBEM 2024, March 29--31, 2024, Wuhan, China},
        publisher={EAI},
        proceedings_a={ICBBEM},
        year={2024},
        month={6},
        keywords={convertible bonds pricing bias backtesting regression analysis},
        doi={10.4108/eai.29-3-2024.2347310}
    }
    
  • Yuchi Cheng
    Zhan Huang
    Yue Yu
    Ziqing Zhou
    Year: 2024
    Exploring Pricing Biases in Chinese Convertible Bonds Market: The Influence of Green Bond Policies
    ICBBEM
    EAI
    DOI: 10.4108/eai.29-3-2024.2347310
Yuchi Cheng1, Zhan Huang2, Yue Yu3, Ziqing Zhou4,*
  • 1: The University of Melbourne
  • 2: South China Normal University
  • 3: Jilin University
  • 4: Central University of Finance and Economics
*Contact email: qing79236@gmail.com

Abstract

This study employed the Black-Scholes model, Binomial Tree model, and Monte Carlo simulation to price convertible bonds in the Chinese market, and on this basis, developed trading strategies and tested the effectiveness of the pricing. The results indicated that the pricing through the Monte Carlo model was the most efficient, offering the highest level of accuracy. Building on this, the study focused on the differences between the theoretical prices calculated by these models and the actual market prices. With the aid of Propensity Score Matching (PSM), convertible bonds were categorized into "green" and "ordinary" and were assessed systematically using the Difference-in-Difference (DID) method to evaluate the impact of the Green Bond Policy introduced in China in July 2021. The conclusion drawn from the empirical analysis was that the policy reduced the deviation between the theoretical and actual prices of the green convertible bonds, which was beneficial to the development of the green convertible bond market.