The Research On Credit Risk Measurement In Corporate Bond Issuers

In recent years, the scale of China Company bond issuing is lager andlarger, which means that the identification and control of credit risk isimportant in the financial market. But China’s credit risk managementconcepts and technologies are not advanced. In fact, the credit rating resultshould be the important tool to measure the credit risk, but it is not inChina. People cannot use the credit rating result reasonably.KMV modelwhich has been affirmed structured credit risk measurement and predicttool can provide a dynamic and timely credit risk monitoring.In order to fit Chinese conditions, it needs to modified the model.Based on the modified KMV model, it’s used to calculate the defaultdistance of two group corporate bond issuers in the manufacturing industryselected from their latest credit ratings. The empirical result indicates thatthe average default distance of the high credit rating group is larger than thelow group. Comparing the credit rating with the combination of DD andthe credit rating to the yield to maturity of Corporate Bond, it shows thatthe combination of DD and the credit rating can better explain the relationof credit risk and the yield to maturity. The result also shows that theaverage DD of the real estate industry is relative low and it faces more riskthan other industries. Meanwhile the sensitivity analysis shows that thevolatility of shares value is most sensitive to default distance.Credit Rating agencies need high cost and long time, but it is nottimely and it cannot accurately reflect the corresponding credit risk ofcorporate bonds. This paper provides a modified KMV model to measurethe credit risk of Corporate Bonds which is a method of measuring creditrisk of listing company to perfect the credit risk evaluation system andpromote the Chinese capital market more scientific and healthy.