Credit Risk Measurement Based On KMV Model

This paper aims to discuss the credit risk measurement of the domestic commercial bank. The paper first reviews the development and research on credit risk measurement in foreign and domestic market. Then it introduces and analyzes the framework, applicability, advantages and disadvantages of several internationally popular modem credit risk measurement models by referring to current foreign and domestic study. By comparing the modem credit risk measurement models introduced above and taking into account of the development status of our domestic commercial banking and financial industry, the paper chooses the KMV model to conduct an empirical study. It also discusses the adaptability of the KMV model within our domestic commercial bank. The reason it chooses the KMV model lays in the factors below:fist, the model has a strong theoretical foundation; second, the data needed in the model could be easily got from the financial report of debtor and its daily transaction data in the stock market. The paper takes into account of the factor of time in the empirical analysis. The result of the empirical analysis supports the conclusion that KMV model could assess the change of debtor credit risk with accuracy to some extent, so it has a certain reference value to the credit risk measurement within our domestic commercial banks. At the end of the paper, several suggestions are made on credit risk measurement in our domestic commercial banks, including building effective credit rating system, strengthening the supervision of information disclosure and legal protection, establishing credit default historical database, researching and developing credit risk measurement techniques suitable to our banking system, etc.