Research On The Credit Risk Of The Financing Product Of Trust Loans Issued By Commercial Banks

With the development of the financing product of the trust loans, its operation mode provides a convenient to banks, trust companies and firms who are in urgent need of money. Banks issue such financing products by working with trust companies and lend the funds raised by the products to those firms. Once the financing product of trust loans issued,it quickly occupies the market.However, the hidden credit risk of such products is usually neglected by the investors. Investors equal the credit of the product to the bank mistakenly. Actually, the bank is not responsible for any payment of the product. Once the firm defaults, the investors will suffer a loss. Therefore, it has the vital practical significance to research on the credit risk of the financing product of trust loans. The credit risk of financing firms has a direct impact on the effective rate of return of the financing product of trust loans.In this study,the Down-and-Out Call Barrier Option model combined with Transformed-data MLE Method and Nelder-Mead’s Simplex Algorithm is adopted to calculate the probability of default of the financing firm,then reflect the credit risk of the financing firm.Next,we Build the relationship between the probability of default of the financing firm and the expected rate of return of the product. We deduce the formula calculating the expected rate of return of financing products via the definition of mathematical expectation which aims to compare the results with the rate of return on the financing product manual.Finally,this study proposes risk control strategy of the products from the perspective of risk diversification and risk hedging.This text innovatively introduces the Down-and-Out Call Barrier Option model to study the credit risk of the financing product of trust loans and proposes risk control strategy on a micro level which is more practical and targeted.I choose 60 public limited companies to be the study samples and devide the samples into two categories:one is ST company(listed companies under special treatment) and the other is non-ST company in order to study the applicability of DOC model.The empirical results show that the DOC model can distinguish between the two types accurately.Then,the ROC test method is choosen to compare the DOC model with KMV model.Test results indicate that the DOC model is better than the KMV in identifying credit risk.Moreover,20 financing products of the trust loans issued by China Construction Bank are selected in the case of financing fund orientation is single company and the company is listed.I use DOC model to measure the credit risk of financing firms and compute the probability of default of the firms.Finally,the probability of default is used to calculate the rate of return of the products again.lt can be found that the credit risk of the financing product of trust loans is generally underestimated and the yield of the product isn’t guaranteed through comparing the expected rate of return calculated by the model with the rate of return on the financing product manual.