Research On The Application Of Credit Default Swaps In Chinese Corporate Bond Market

The Chinese corporate bond market is going strong now. Since the issue of the first corporate bond in the year of 2007, the scope of this market has begun to shape. However, the bond market in China is far from perfect and has many defects, which seriously affect the development of corporate bonds in China. By analyzing these defects, we conclude, applying CDS (Credit Default Swaps), allowing the investors to have effective tools to hedge credit risk, will solve some of the problems in the development of corporate bond market in China.Aiming at the defects in the Chinese corporate bond market, this thesis argues that, CDS will improve the scope, liquidity, pricing and the financing activities of medium-and-small enterprises in the Chinese corporate bond market, with emphasis on the application of CDS in Chinese corporate bond market and consideration of the distinctions of Chinese finance environment. As to empirical study. the default probability for an existing corporate bond in Chinese market is calculated and a CDS is priced successfully by Reduced Form Models, the reference entity being the aforementioned bond, which clarifies the pricing method for bonds of this kind and offers support for the application of Reduced Form Models. Furthermore, this thesis discusses in great details some of the issues that need serious attention when trading CDS in China, and makes an observation of CDS's own risks. Finally. based on the above, we give some suggestions for the supervisor.