Research On China's Bond Default Risks Using Varying-coefficient Discrete Choice Models

2014 is the first year of default risks in China's bond market,the Shanghai“Chao-Ri” bond default becomes the first substantive default event.By 2016,default risks in China's bond market has shown a trend of spread.Therefore,for the preparation in advance,an effective response to prevent default events is essential.And it is important to judge and to predict the possibility of defaulting corporate's bonds.It is also an important part and the bottom line to prevent the occurrence of systematic regional financial risks.In this paper,the estimation method of the varying coefficient discrete choice model and its proof are given.Then,we select 14 indicators from the financial data for the general medium-term bonds in 2013 to 2015 and in the first quarter of 2016 Principal component analysis aim to reduce dimensions of the data and obtain its principal component score.On this basis,we use the general discrete choice model and varying coefficient discrete choice model to obtain the default probability of the2016 bond sample.And the Bayesian discriminant method is used to construct the discriminant criterion for the probability of default,and the criterion is used to judge whether the bonds belong to the problematic bonds.The results show that the misjudgment rate of the problem bond is 75% under the variable coefficient discrete choice model,and the robustness of the model is insufficient,because the problem bond itself is very scarce relative to the sample size.So,this method is applied to the stock market to find the problematic stocks by using varying coefficient discrete choice model.The results show that stock misjudgment rate is reduced to about 25,indicating that China's bond market still doesn't have a substantial number of default bonds until the full development of China's bond market.It is expected that thevarying coefficient discrete choice model will be applied well in the future.Finally,the paper gives some suggestions on the development of China's bond market,especially the prospect of credit default.