Core Viewpoint - The article discusses the evolution and valuation of floating rate bonds (FRBs) in China, highlighting their unique characteristics and the need for improved valuation methods in the context of interest rate marketization and green finance development [1][2]. Group 1: Market Evolution of Floating Rate Bonds - The development of FRBs reflects the phased characteristics of China's financial system reform, experiencing three expansion phases from 1995 to 2021, with a current outstanding amount exceeding 5 trillion yuan [3]. - The liquidity of the FRB market is notably low, with monthly transaction volumes around 50 billion yuan, accounting for less than 0.2% of the total market [3]. Group 2: Research Objectives and Methodology - The study focuses on the valuation and risk measurement of FRBs, using the Industrial and Commercial Bank of China's 2025 first green financial bond as a representative case [4]. - A dynamic valuation model is established using forward rate predictions, integrating risk measurement through the DV01 metric to assess interest rate sensitivity [4]. Group 3: Key Findings on Valuation and Risk Measurement - Dynamic valuation methods outperform static approaches, with the theoretical price of the selected green bond aligning closely with market performance, while static methods may incur valuation errors exceeding 0.5% [6]. - FRBs exhibit defensive characteristics during rising interest rate cycles, with a price decline of only 0.16% when rates rise by 100 basis points, compared to a 2.3% decline for fixed-rate bonds [6]. - In declining interest rate environments, FRBs show limited upside potential, with price increases of only 0.16% when rates drop by 100 basis points, significantly lower than the 2.3% increase for fixed-rate bonds [6]. - The DV01 measurement indicates a low sensitivity of FRBs to interest rate changes, providing a risk hedging tool for institutional investors [6]. Group 4: Comparison with Fixed Rate Bonds and Policy Implications - The study reveals the complementary nature of FRBs and fixed-rate bonds in asset allocation, suggesting that FRBs are suitable as defensive assets in rising rate environments, while fixed-rate bonds are preferable in declining rate scenarios [7]. - The research contributes to theoretical and policy discussions by proposing a dynamic valuation framework, localizing risk measurement applications, and offering practical insights for asset allocation strategies [7]. Group 5: Market Development and Future Outlook - Despite the advantages of FRBs, the market faces challenges such as weak liquidity, an underdeveloped forward rate derivatives market, and insufficient investor awareness [8]. - Future efforts should focus on enhancing market liquidity, improving valuation systems, and strengthening investor education to promote the adoption of FRBs [8]. - Overall, FRBs are positioned to become significant tools for institutional investors in asset allocation and risk management as China's financial market continues to evolve [8].