Impact of Listed Companies’ Financial Indicators on CRMW Pricing Using the First Passage Time Model

In China, Credit Risk Mitigation Warrants (CRMW) have gradually become an important tool for corporate financing. However, their market-oriented pricing mechanism remains underdeveloped, leading to deviations between theoretical and market prices in practice. Current CRMW pricing is influenced by multiple factors, including market perceptions of credit risk and fluctuations in investor demand, resulting in significant asymmetry in financing costs across enterprises. This paper explores the deviation between theoretical and market prices of CRMWs in China and their impact on bond financing costs. Using the First Passage Time Model to simulate the stochastic process of corporate asset value and Monte Carlo simulations to calculate default probabilities, we provide a detailed analysis of pricing deviations. Empirical results show that CRMWs for financially healthy firms (high Z-scores) are significantly overpriced due to excessive market demand for credit protection, leading to increased financing costs. Conversely, CRMWs for financially distressed firms (low Z-scores) are underpriced, potentially lowering financing costs. This study reveals asymmetric contradictions in CRMW market pricing and proposes differentiated financing strategies: financially robust firms should prioritize direct bond issuance to avoid cost paradoxes, while distressed firms can leverage CRMW policy benefits to optimize financing structures. These findings offer theoretical support for improving CRMW pricing mechanisms and corporate financing decisions.