Quantitative Models and Construction Methods - **Model Name**: CRR Binomial Tree Pricing Model **Model Construction Idea**: The model incorporates embedded clauses, credit spreads, and other factors to improve pricing accuracy compared to traditional methods like BSM[13][40] **Model Construction Process**: 1. Define the theoretical value of convertible bonds using the CRR binomial tree model. 2. Calculate the "pricing deviation" as the difference between the CRR theoretical pricing and the market price. 3. Use this deviation to assess whether the convertible bond is undervalued or overvalued. **Evaluation**: The model is more precise in pricing convertible bonds due to its consideration of embedded clauses and credit spreads[13][40] - **Model Name**: Convertible Bond Fund Delta Tracking Model **Model Construction Idea**: Dynamically track the style allocation of convertible bond funds and calculate weighted DELTA values to observe fund behavior[38][40] **Model Construction Process**: 1. Define convertible bond funds as funds primarily investing in convertible bonds. 2. Use regression models to dynamically track the style allocation proportions of convertible bond holdings. 3. Calculate weighted DELTA values based on style indices to monitor fund linkage with equity market movements. **Evaluation**: Provides insights into fund behavior and style shifts, with DELTA values reflecting the linkage between fund performance and equity market trends[38][40] Model Backtesting Results - **CRR Binomial Tree Pricing Model**: - Pricing deviation median: -12.79 yuan - Weighted deviation: -9.67 yuan[14][16][40] - **Convertible Bond Fund Delta Tracking Model**: - Average DELTA value: 72.41% - DELTA contribution ratio: 7:2:1 (equity, balanced, debt styles)[38][40] Quantitative Factors and Construction Methods - **Factor Name**: Convertible Bond Low Valuation Momentum Factor **Factor Construction Idea**: Identify convertible bonds with market prices lower than CRR theoretical pricing and positive short-term momentum in underlying stocks[40][42] **Factor Construction Process**: 1. Initial screening: - Bond rating AA- or above - Outstanding balance ≥ 2 billion yuan - Non-ST stocks historically - No rating downgrades or negative outlooks historically - Major shareholder pledge ratio < 90% - Recent 10-day trading activity - Redemption progress < 5 days - Not below debt floor 2. Bond classification: - Divide bonds into equity, balanced, and debt styles based on parity levels (<90, 90-110, >110). 3. Selection criteria: - Comprehensive scoring based on valuation (absolute and relative pricing) and short-term stock momentum. - Select top 10 bonds from each style for a total of 30 bonds. 4. Weighting and rebalancing: Equal weighting, monthly rebalancing[40][42] **Evaluation**: The factor effectively identifies undervalued convertible bonds with potential for positive returns[40][42] Factor Backtesting Results - **Convertible Bond Low Valuation Momentum Factor**: - Monthly return: 1.21% - Long-term annualized return (since 2017): 16.59% - Maximum drawdown: 11.26% - Return-to-drawdown ratio: 1.47 - Monthly win rate: 67.35%[40][46]