Research On The Application Of Credit Risk Slow Release Tool In China 's Commercial Banks

The Chinese inter-bank market dealers association issued The Business Guidelines of Inter-bank Market Credit Risk Mitigation and its relevant supporting documents on October 29, 2010, which symbolizes that the credit default swaps with the Chinese characteristics was promulgated. Since then, the Credit Risk Mitigation(CRM) as a new risk management tool had been widely applied in commercial bank’s daily risk management, and had achieved good results. The credit risk mitigation provides a new way for credit risk management by stripping of, reconstructing, pricing and transferring the credit risk. China’s credit risk mitigation started relatively late, and there are problems like transaction conservative, transaction single, sellers’ needs more than the buyer’s needs. Although the current study on the pricing of credit risk mitigation in foreign countries has become more deeply and systematically, and also developed different pricing models, most of which are too complex, and could not be applied to the reality of our country. Therefore, this paper has carried out the following work:Firstly, explained the working principle and economic theory of CRM, and its functions in Chinese commercial bank. Then, by combining the history of China’s credit risk mitigation, analyzing the present developmental situation of China’s credit risk mitigation and comparing China’s credit risk mitigation with foreign credit default swaps in the aspects of operation mechanism and process of transaction.Secondly, analyzed the international mainstream pricing methods, such as Merton pricing model, reduced form model and Monte Carlo simulation principle, and pointed out their advantages and disadvantages and applicable scope. Combined with the domestic financial environment, putting forward suitable pricing methods which can be accepted by the practical application, for example, credit spread method, discounted cash flow method, cost method, and analyzing their application conditions.Thirdly, took pricing the credit spreads into consideration under the liquidity risk. Finally, choosing a sample of Credit Risk Mitigation Warrant from the transaction market, and verifying the feasibility of the application of the pricing model and the influence of liquidity risk. Based on the application of credit risk mitigation pricing model in our country, and put forward some suggestions for the development of China’s credit risk mitigation.