Study On The Influential Factors Of Credit Default Swaps

Credit Default Swap is an insurance contract which can avoid company creditrisks, after twenty years’ development, it has become a credit derivative whose tradingvolume is the largest on the credit derivatives market. CDS can not only help Banksavoid the credit risk, but also can provide security to companies which wants to issuebonds. At present, our country has launched Credit Risk Mitigation which tradesmainly between Banks, which is the Chinese version of CDS. Hence, discussing thedeterminants of CDS prices and establishing a standardized and reasonable CDSpricing system are very important to the development of CDS market in China. Thispaper study the determinants of CDS prices mainly from three aspects which arecredit risk, liquidity risk and interest rate risk.This paper first of all introduced the related concepts of CDS, and reviewedliteratures about the determinants of CDS prices at home and abroad.Then, weelaborated the emergence and development of CDS and the theoretical basis of thispaper. Next, we using the multivariate regression model to analysis the determinantsof CDS prices and obtain the results which is consistent with the theoreticalstudy.That is the lower the bid-ask spread is, the greater the CDS liquidity is and thehigher the CDS price is; the higher the reference entity’s credit rating is, the lower theCDS price is; the higher the risk-free interest rate is, the lower the CDS price is. Inrecent years, more and more scholars pay close attention to the liquidity premium, wecombined Fama and MacBeth regression method with generalized least squaremethod to analysis the relationship between the bid-ask spread and CDS prices at theend of this paper, coming to the conclusion and puts forward relevant policySuggestions to CDS’s development in our country.