The Pricing Of Chinese Corporate Bond With Structural Model

In the issue and transaction of corporate bond, the price is one of the most important factor that the investor will take into consideration. So how to price the bond properly is very important for the development of corporate bond market. This paper tries to price Chinese corporate bond with structural model and analyze the pricing results.Structural model takes the corporate bond as an option against the assets of the corporate. Three structural model were chosen to make the empirical analysis which are Merton model,Black&Cox model and Briys model. The value of corporate assets is one important parameter in structural model and three ways were used to estimate it in this paper. The pricing results show that Merton model performs better than the other two which under estimate the bond price. The pricing error also show that the structural model is not proper for the mark to market calculation but is useful for credit rating.The first part introduces the contribution of this paper. Chinese corporate bond market has been growing fast since 2007, and this trend will last for a long time. So the pricing of corporate bond is of great importance. This paper is the first one that uses maximum likelihood estimation method to estimate the value of corporate assets. The second part analyzes three structural models in detail. In the third part of this paper, I use the three models that were introduced in the second part to price Chinese corporate bond. The difference between pricing results and transaction price are great.The last part of this paper concludes that the structural models can’t fit the transaction price accurately. But because the models has a closing link with the economic base, they are useful to analyze the risk of corporate bond and can be a good reference for investment.