The Research On The Pricing Problem Of Interest Rate Swap In China

In the background of global financial integration and liberalization, the interaction of financial markets are continuously strengthened. The interest rate risk of financial institutions and enterprises are increasing, in order to manage and hedge the interest rate risk, interest rate swap came into being. Since the interest rate swap appeared in 1980 s, its development speed is extremely amazing, it has become one of the most widely used and the largest trading volume financial derivatives in international financial markets. Interest rate swap is not only the important tool to help the participants to hedge and manage the interest rate risk, but also an important bridge to link the bond market and the currency market. It has an important impact on the base rate. After more than 30 years of development, in the developed countries in Europe and America, the interest rate swap market has grown more mature, the system is quite complete, the position of the curve of the US interest rate swap is even better than the bond yields curve.The trading experimental of China interest rate swap market started in 2006, the market was officially formed in 2008. After nine years of development, the scale of the China interest rate swap market has made a significantly expansion. It has become an integral part of Chinese financial markets. It make an important contribution to the institutions to hedge interest rate risk, multiple the portfolio, predominate the market expectation. But its product category, market liquidity, pricing of the swap and other aspects are still insufficient, they make some constraints to the function of interest rate swap, the market development has many bottlenecks. Pricing problem of the interest rate swap is the core problem of the market development, its impact is particularly prominent. However, the interest rate swap related research is very inadequate at present, and the systematic and in-depth study is deficient. This dissertation based on the reference of the latest research in China and overseas, combining the development of the interest rate swap market in China, focusing on the pricing of interest rate swap in order to provide some useful proposals for the development of the China interest rate swap market.China has established the interest rate swap market later than the developed country, before analyzing the China interest rate swap market, we should understand deeply of the relevant theory and research of the interest rate swap products at first. Currently the overview on foreign research is easy to find, but it is not very comprehensive and systematic of the summary. Furthermore, the systematic research on the domestic article summarized is harder to find. Based on this situation, this dissertation elaborate systematically of the basic theory of interest rate swap, such as the definition of the interest rate swap, trading mechanism, as well as the feature and function, risk and prevention. Then, this dissertiton make comprehensive and systematical summary of the pricing of interest rate swaps research.On account of the international interest rate swap market growing more mature and complete, the dissertition continued to analyze the international interest rate swap market characteristics and trends, further pointed out the advantage of the foreign mature market worthing the China interest rate swap market to learn. Then it describes the development process and the significance of China interest rate swap market, detailed analyze the development status of China interest rate swap market, points the gap between the foreign mature market and the domestic market, find out a series of problems of the current interest rate of China. This dissertation argues that the main problem for the development process of the China interest rate swap market is the pricing problem.Only through accurate pricing, the various functions of the interest rate swap could play a normal role, traders were able to avoid interest rate risk or arbitrage. This dissertation analyzes the no-arbitrage pricing model without considering the risk of default. It selects relatively complete data of the financial markets, chooses three noarbitrage pricing models, use the BDT model, the HW model and the equivalent bonds model for the pricing of the one-year SHIBOR₃M interest rate swap. After the pricing and comparative analysis of the results, we found that the pricing results of three pricing models are not very resonable, the results of pricing model BDT is quite realistic in contrast, but the curve movements is too gentle, and the response is slower. The bond equivalent Model pricing curve trend is very consistent with the trend of the actual transaction price curve, but there are some spreads. In this dissertation, each trading day are carried out pricing by the three no-arbitrage pricing models, there is no such a comprehensive and in-depth analysis in one research recently.What’s more, the dissertation analyzes the characteristics of the China interest rate swap spreads, established the VAR model with swap spreads based on the one-year and five-year period of SHIBOR₃M and FR007 interest rate swap products. Then, through the establishment of MS-VAR model compared with the VAR model, found that the VAR model does not include status transition, VAR model fits better, it is because the data are spreads, the change of spreads already contains effect by shock. By Granger causality test found that each VAR model regression equation on the interest rate swap spreads pass the joint test, but the variable SLOPE pass the test only in the one year FR007 interest rate swap spreads. It shows that the other three did not reflect the expectation of the term structure of interest rates, the interest rate swap price based on SHIBOR did not reflects the influence factors comprehensively, so its market acceptance is not enough, further prove that the one year interest rate swaps based on FR007 transact most actively, SHIBOR as the benchmark interest rate still needs some improvement.In each VAR model, after the generalized impulse response analysis found that, the response of short term and long term interest rate swap spreads have some similarities and differences. Followed by a static prediction, found the predictions of each VAR model are accurate, the trend and volatility of the actual and predictions are identical, the curve almost coincide. By contrast with the case of no-arbitrage pricing model, we consider that the VAR model based on spreads is superior to no-arbitrage model in pricing the interest rate swap, we can use this model as a reference price model of China interest rate swap.Through the analysis of this dissertation, wo deem that there are many problems in the development of the current China interest rate swap market, the reasonable and accuracy pricing is constraints by some problems, the functions of the interest rate swap can not be effectively realized. To solve these problems, promote the market reform of interest rate, and encourage the China interest rate swap market healthy development, the dissertation puts forward some constructive and innovative suggestions. They can briefly stated as follows. We should improve the SHIBOR rate formation mechanism, develop and improve the bond market, gradually liberalize the deposit rates, accelerate the market reforms of interest rate and expand the scale of participation of the interest rate swap market, improve the capacity of the market innovation, in order to effectively improve the reasonable and accuracy of pricing, and further promote the rapid development of the China interest rate swap market.