Bank Loan Pricing System Based On The Principle Of Bonus-malus System

Credit is one of the key businesses of commercial banks. How to choose the accuratepricing model and to develop the reasonable the loan prices become the important issuethat commercial banks have been facing in their business management. To research thetopic, a large number of the experts and scholars have spent a lot of effort and made greatachievements. For example, the KMV Company develop KMV model according toMerton option pricing theory, which can measure the credit risk of the borrowers throughtheir market value, JP Morgan&Co. establish the Credit Metrics model in1997, whichcanestimate the borrowers’credit risk. et al. However, these models are not in line withChina’s national conditions. So we need establish measurement model in credit risk whicheffectively applies to our national conditions.To meet with the demand, this thesis develops bank loans’ B-M credit risk managementsystem.Before developing the system, it is essential to estimate the probability of default (PD)and loss given default (LGD). In this paper, the generalized Pareto distribution is used tofit the PD and the zero-inflated generalized beta distribution to fit the LGD. Then thesystem of bank credit risk management is established according to the relevant principlesof the automotive Bonus-Malus system (BMS). At last, it is analyzed that the steady-statedistribution of the credit rating transfer and the discount of the level of loan interest rate.This study made some attempts to respond the requirements of the domesticcommercial banks which need speed up to develop the internal credit rating system.Andits purpose is to establish a credit rating system in line with China’s national conditionswhich can strengthenthe management and control of the borrowers’credit risk.