Study Of Improvement On Measurement And Management Of Chinese Commercial Bank Credit Risk

The measurement and management of credit risk is difficult and have increasing interest. The paper starts at the two most active fields: the modern measurement of credit risk and modern management of credit risk based on credit derivatives and structured finance instrument. The paper absorbs the spirit and reform contents of The New Basel Accord, which is the criterion of risk management in global bank community. Blue print of credit risk adapted to the situation of china is derived from credit risk management practice in developed countries and the last academic research.On the base of reviewing the past work, from the point of view of Chinese appilicability, the paper constructs a full system of improvements on measurement and management of credit risk in Chinese commercial bank along the rounts from individual risk to portfolio risk, from risk measurement to risk management and from theory to application. The paper is composed of three parts: the improvement on measurement and management of individual credit risk, the improvement on measurement and management of portfolio credit risk and their application.In the first part, firstly, the measurement of basic elements (exposure risk, default risk and recovery risk) and losses of individual credit risk are researched. The improved KMV model is constructed and allows premature default, time-varying default barrier impact. Therefore the measurement is more comprehensive, precise and consistent. Secondly, improvements on management of individual credit risk are reseached. Expected losses are compensated by modern pricing on loan. Unexpected losses are controlled by the optimal credit limit management based on differential game-theoretic. Extreme losses are reduced through credit risk mitigation (loan contract restriction term, collateral, guarantee and credit derivatives).In the second part, firstly, the modern measurement of portfolio credit risk is researched. The risk contribution from individual risk, the correlation of credit risk in portfolio and the credit risk losses measurement are examined. The default probability, default correlation, the scope of credit risk diversification and the limit distribution of losses are derived under different assumptions regarding the structure of systematic risk and the nature of exposure or firm heterogeneity. Secondly, the improvement on management of portfolio credit risk is researched, such as the credit risk optimization with CVaR, decentralization and transfer management through credit derivatives and securitization products. The optimal combined proportion under CVaR is examined. The category and structure of credit derivatives and securitization products is analyzed. The principle and mechanism of credit risk transfer and diversification are examined.In the third part, the improvement on measurement and management of credit risk are applied to the china's practices. The improved KMV model is applied to the measurement of individual credit risk. The modern pricing and optimal limit are applied to the management of individual credit risk. The single-factor model and Monte Carlo simulation are applied to the measurement of portfolio credit risk. The credit risk optimization with CVaR and credit derivatives and securitization are applied to the management of portfolio credit risk.The paper has valueble academic referrences and practical applications on Chinese practice.