A Study On Effect Of Credit Risk Mitigation Tools

Credit risk is the oldest one of the risks faced by commercial banks, has beenthe focus of attention of the world’s major commercial banks.In2004, the BaselCommittee issued the New Basel Capital Accord, in which collateral, guarantees andcredit derivatives and other credit risk mitigation tools are to do a detailed analysisand interpretation, and the credit risk mitigation tools are to effectively spread andtransfer credit risk. In2010, the domestic large commercial banks have begun toimplement the New Basel Capital Accord, credit risk mitigation techniques as thecontent focus of the New Basel Capital Accord, so that how to use credit riskmitigation tools will be the main problem faced by the commercial banks in China. Atpresent, China’s economic growth is slowing, financial risk has appeared, credit riskcan not be ignored. Facing such a difficult business environment, how commercialbanks take advantage of the credit risk mitigation techniques is not only related to theoperating safety of the commercial banks, also affect China’s macroeconomicdevelopment. Therefore, how to play the role of credit risk mitigation tool in reducingcommercial bank credit risk level, will become an important part of this study.The research content of this article is risk mitigation role of credit derivativescredit risk, including mortgage and pledge, netting, guarantees and credit derivatives.First, the options pricing model investigates relation between collateral value andthe probability of default, LGD relationship. The Copula function examinesinfluence value of the collateral on the value-at-risk and capital requirements. Therelationship between the value of the collateral can effectively reduce the probabilityof default of the loan, LGD, value-at-risk, capital requirements. Second, withconcrete examples of netting, netting plays an important role in the releasing riskfrom counterparty. Again, we analyze of the probability of default of guarantee loans,Finally, we analyze of influence credit derivatives business on commercial banks.