Corporate Bonds Pricing Research Based On Credit Risk Model

As it always happens to us that capital market mainly indicates the level of national economy. How to allocate capital efficiently is highly concerned with the development process and prospect. So the development level of the national capital market obviously determines the development level of the national economics. Accordingly, debenture is a main kind of credit bonds, which acts as critical component of capital market, also shows great influence on the development of capital market. However, the knockdown of credit bonds remains inactive in China’s bond market, little related material can be provided. Therefore we will find it difficult to obtain data, being necessary for the measurement of interest risk, credit risk and liquidity risk to debenture pricing, which can reflected the overall reality of market. This brings barriers to the research.This paper makes brief introduction to the elementary knowledge about bonds pricing, and then discusses the details of the primary influencing factors about corporate bonds price, mainly focusing on the pricing models of credit risk and interest risk. After that, the paper introduces two kinds of credit risk pricing models which adopt stochastic interest rate and credit risk:structural model and reduced-form model.In succession, under the framework of reduced-form model, this paper builds an improved corporate bonds pricing model based on term structure of credit spreads.Subsequently, with credit risk introduced on the basis of term structure model of interest rate, this paper adopts the pricing model which is based on term structure of credit spreads to give fact study on the short-term commerce coupon.This paper gives the estimate for parameters of the stochastic interest rate process. From the before-mentioned investigation, the result shows the actual corporate bonds price can be better reflected by the corporate bond pricing model which is based on term structure of credit spreads, and the credit risk can also be reflected by the credit spreads which are observed in the market. This kind of pricing model not only helps to build the term structure of credit spreads which is fit for the financial market status in China, but also helps to price the credit derivatives such as asset-backed securities.Finally, based on the positive fact-study results, this paper gives analysis to the insufficiency of the present corporate bonds pricing models, and also gives proposals to improve the pricing models in future development. Furthermore, the problems which may cause impact to the development of corporate bonds pricing in China’s capital market are also pointed out for future resolving.This paper first explains the elements which promotes the rapid development of current credit risk models. Then it describes several representative models with mathematic words and makes comparison with the principles、advantages and disadvantages of these models. On that basis, the article discusses two kinds of credit risk pricing models:structural model and reduced-form model.Finally, on the basis of positive fact-study results, this paper conducts empirical test to suggest the deficiency of the present corporate bonds pricing models, and also shows advices for the improvement. In the end of the paper, the main problems that will hinder the research of debenture pricing in capital market are also put forward for further settlement.