Analysis Of Mechanism And Research Of Applicationon Credit Derivatives

Credit derivatives are innovative tool to defuse credit risk and strip out the credit-risk component from other financial risk. Using the methods of hedge and risk hedging position, credit derivatives transfer credit risk to the financial markets. Also Credit Derivatives is a negative benefit assets, Its can completed the credit risk hedging positions by the transaction of sellers and the buyers. So, the analysis of credit derivatives has been a significance of theoretical and practical research which under the context of financial globalization, the subprime mortgage crisis warning and China's financial reform background.First, this paper introduced the definition of the credit risk, then gave the characteristics and reasonable classified credit derivatives based on the theory of credit risk transfer. That gave the theoretical foundermental for the research of the single underlying assets credit default swaps and credit default index products.Second, the paper analyzed operation mechanism of single underlying assets credit default swaps. And proposed a reasonable analysis for operating this product in China. And meanwhile it improved single underlying assets credit default swaps model of John Hull.Third, this paper concluded and summarized the categories and characteristics of credit default index product. And get the result of inverse relationship between the credit default index products and systemic risk indicators by using Pearson product moment correlation coefficient method. That proved possibility which used the method of credit default index products hedge the of systemic risk.At last, give the empirical analysis for the combined ratio of insurance companies and corporate bond default rate after the analysis of the perspectives of future for Chinese credit derivative products. It also give the theoretical foundermental for china insurance company to use this product.Because of situation of development of credit derivatives in China is not standardized,so it analyzed the risks and present solutions. Based the theoretical and empirical analysis above, the paper give recommendations of building a credit default index and how to establish China's credit default index futures.