Credit Asset-backed Securities Design Based On Credit Default Swap Upgrade

Financial derivatives is one of the most innovative and fastest-growing financial products of the 21 st century.It has the functions of separating,transferring and hedging credit risks.At the same time,excessive trading of a large number of derivatives has helped boost the US subprime mortgage crisis and indirectly accelerated the expansion of the crisis.Among the most influential and largest derivatives are credit default swaps.In large-scale asset securitization in the United States,issuers have excessively used credit default swaps for credit enhancement,and CDS has been used in CDO's repeated asset securitizations to upgrade subordinated securities to priority sales.China began to introduce credit default swaps in 2010 and established related market systems.In terms of asset securitization,China's development time is relatively short,and it requires a higher rating for asset-backed securities.However,at present the credit enhancement measures for China's asset securitization are lacking,the effect of upgrading is poor,and the main credit enhancement measures are internal measures.The main external upgrading is mortgage guarantees.Therefore,under the circumstances of studying the risk management function of credit default swaps and the insufficient upgrading effect of asset securitization in China,this paper refers to the use of credit default swaps in the United States to upgrade asset securitization,and proposes the use of credit default swaps for asset securitization,and further design of credit asset-backed securities.The most important innovation in this paper is the design of credit asset-backed securities,combining asset-backed securities and credit default swaps,and separating the credit risk of asset-backed securities to enhance credit.The significance of this product is to promote the development of asset securitization financing in China on a macro level,and to provide a channel for SMEs and high-tech enterprises to implement asset securitization financing.The research idea of this paper is to first comprehensively review credit default swap products including concepts and principles,generation and development,and functions.Then,it analyzes the use of credit default swaps to enhance credit of asset securities,including the lack of current credit enhancement measures for asset securitization.And the advantages of using CDS to enhance credit;secondly designing credit asset-backed securities(CABS),analyzing the structure of credit asset-backed securities and the risks and benefits of participating entities,and finally pricing credit asset-backed securities,first applying the simplified theory to calculate possibility of default,and then use cash flow expectation value to be priced.