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Credit Bond Pricing With Reduced Form Models In China Interbank Market

Posted on:2015-07-28Degree:DoctorType:Dissertation
Country:ChinaCandidate:X J PanFull Text:PDF
GTID:1109330485491757Subject:Management Science and Engineering
Abstract/Summary:PDF Full Text Request
With the rapid development of bond markets and the emergence of credit derivatives, a variety of related theoretical and practical issues were gradually concerned by a number of scholars. Interest rate risk and credit risk are the main risks in fixed-income securities investments, so, choosing an appropriate model that is able to measure the term structure of bonds markets’ benchmark interest rates, characterize the default dynamic process of credit bonds, price and forecast credit bonds and manage risks has become a core and urgent issue in the financial field.In the paper, based on the reduced-form model of credit risk, dynamic term structure and credit risk measurement theory, taking short-term financing bonds and medium-term notes in china’s interbank bond market as samples, the measurement of the interbank market’ benchmark interest rate, the pricing of zero-coupon and coupon credit bonds, and the depiction of credit spreads will be deeply researched either theoretically and empirically. The paper is divided into four main parts, with each part goes as follows.Firstly, established a multi-factor jump-diffusion model characterized the interest rate term structure in the interbank bond market and tried the Kalman filter in conjunction with genetic algorithm to estimate the parameters of Vasicek jump diffusion models and pure diffusion models based on the comparison of five models’ fitting effect. And furthermore, worked out the selection criteria of interest rate term structure model, which provides reference for the following study on credit bonds pricing.Secondly, Multi-factor affine pricing model was constructed by studying the pricing on short term financing bonds(zero-coupon bond) which experienced booming development in recent years at home. The parameters of the model were estimated empirically by the Kalman filter approach and the Monte Carlo simulation method which is used for forecasting price of bonds. In addition, credit spreads’ dynamic characteristics were studied on bonds released by the same issuer with the same credit rating.Thirdly, medium-term notes(coupon bond) pricing study in China’s interbank market were, made to construct a reduced-form model which is applied to value credit coupon bonds, and go further to work out a closed-form solution. The pricing model was linearized through the first-order Taylor approximation. The empirical results showed that the model has validity and rationality of Taylor linearization. Besides, the pricing results were compared based on two cases of independent and joint default risk parameters.Finally, on the basis of the results of the pricing research in the credit risk reduced-form framework, more specific research on the sample of medium term notes were done to set up credit spreads models by the three ways, individual factors, common factors and the combination of the two factors separately. By comparing the fitting effect and forecasting ability of bonds price, afforded a selection criteria of credit spreads model.
Keywords/Search Tags:Interbank bond market, jump diffusion model, Reduced-form model, credit risk, credit spreads, Taylor’s approximation
PDF Full Text Request
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