Core Insights - The trend of institutionalization and passive investment in the convertible bond market is accelerating, with public funds holding a record 41% of convertible bonds by mid-2025, indicating a shift from active alpha-driven strategies to beta-driven strategies [2][12][16] - The LSM (Least Squares Monte Carlo) model identifies mispricing in convertible bonds, allowing for the discovery of undervalued securities [3][19][29] - A multi-factor enhancement strategy combining valuation, game theory, and elasticity factors has shown an annualized return of 25.1%, significantly outperforming convertible bond ETFs by over 19% [4][47] Group 1: Special Background - The convertible bond market is experiencing unprecedented institutionalization and indexation, with the total market size fluctuating from 705.3 billion yuan at the end of 2021 to 672.8 billion yuan by mid-2025 [12][16] - The rapid growth of convertible bond ETFs, which reached over 700 billion yuan in less than three months, is attracting significant capital seeking low-cost exposure to the convertible bond market [13][16] Group 2: Option Pricing - The LSM model effectively incorporates complex games and default risks, achieving a high explanatory power (R² of 98.6%) in pricing convertible bonds [3][29] - The model's unique perspective on undervaluation differs from traditional dual-low valuation methods, allowing it to identify mispricing opportunities due to factors like clause complexity and volatility perception [30][31] Group 3: Factor Enhancement - The multi-factor strategy utilizes three key factors: dual-low valuation, convertible bond balance, and underlying stock volatility, to construct a portfolio that captures undervalued securities with game value and upward elasticity [4][42][47] - The strategy's performance has been validated through backtesting, demonstrating superior risk-adjusted returns compared to benchmarks [47] Group 4: Strong Redemption Prediction - The demand for strong redemption from issuers is evident, with 30 convertible bonds announcing strong redemptions in the second half of 2025, primarily driven by the performance of underlying stocks [48][49] - A predictive model quantifies the probability of redemption events, helping investors avoid risks and identify opportunities based on issuer behavior [5][49]