Abstract: Stock pledged repos are important innovative financial products in China, and its loan-to-value (LTV) ratios are crucial for risk management of financial institutes.In this paper, dynamic relationships among key parameters of stock pledged repos, such as loan-to-value ratios, predetermined termination lines, maturity date, repos interest rate and fees are established, by using option pricing theory. Then theoretical LTV ratios of sample stocks with different maturities are given by these dynamic relationships, in which samples are chosen from constituent stocks of Shanghai-Shenzhen 300 and SZSE SME 300 Price indexes in China. Furthermore, under different target levels of risk management and different maturities, these theoretical LTV ratios are compared to practical ratios published by ZhongHang Security and the LTV ratio discounted by closing line, and empirically investigated risk coverage levels of these theoretical and practical LTV ratios based on Kupie?s idea. Empirical results show that most theoretical LTV ratios with different positions are higher than the practical one, while theoretical LTV ratios with cash margin have the same risk coverage level with the practical one, and the risk coverage level of theoretical LTV ratios with the supplementary stocks term is lower than practical ones, but higher than LTV ratios discounted by closing line. Therefore, a kind of combined mode with theoretical and practical LTV ratios are proposed in this paper. The empirical result shows that the risk coverage level of the combined LTV ratio is higher than theoretical LTV ratios. Besides, they are quite superior to practical LTV ratios in aspect of cutting financing cost. Therefore, it is argued that, with financial institutes' management target lines, LTV ratios of stock pledged repos should be set to combined modes with theoretical and practical LTV ratios in order to control risk and reduce financing costs. Our conclusion is helpful for financial institutes to expand the scale of stock pledged repos and control the risk of these repos.

Key words: stock pledged repos, loan-to-value ratio, risk coverage level