Credit Risk Measurement And CDS Pricing Analysis Based On PPP Real Debt With Equity Character Financing

With the rapid development of China’s infrastructure construction and operation fields,the PPP model has become an important financing and cooperation method in this field by virtue of its ability to integrate the resources of the government public sector and the public.However,due to the relatively complex structural characteristics of the PPP model,the issue of PPP project financing is a key obstacle to the smooth progress of the model.From the analysis of the source of funds for PPP project financing,the main part is usually funds from financial institutions such as banks and insurance.However,on the one hand,they are clearly bound by regulatory policies,and on the other hand,they are limited by their own risk appetite and operating capabilities.Their participation in PPP project financing is mainly realized by means of real debt with equity character.Therefore,the credit risk measurement of real debt with equity character of the PPP project’s financing and the research on credit risk mitigation tools based on this have become a key issue in PPP project financing.Although domestic and foreign scholars have done a lot of research on the characteristics of various methods of financing PPP projects,the main financing structure,risk factors,and risk sharing mechanisms,they also conducted credit risk measurement methods and CDS pricing methods for credit risk mitigation tools.After in-depth research,a large number of research results have been formed.However,at present,there are few researches on effective and feasible methods of credit risk measurement of real debt with equity character based on PPP projects,especially the pricing research of CDS,a credit risk mitigation tool based on this,is almost blank.This article will carry out analytical research in this area.This paper studies the credit risk measurement and CDS pricing analysis based on PPP project debt financing.First of all,a preliminary study is made on the common financing methods of PPP projects,the risk and sharing mechanism in the project,the boundary between corporate and government debt in the project,and the transaction structure of the PPP project’s real debt with equity character.Secondly,on the basis of traditional credit risk measurement methods,combined with the index system of corporate entity ratings,the constrained logistic regression was introduced to more accurately characterize the default probability of corporate entities.Finally,by further elaborating and characterizing the default risk of PPP’s real debt with equity character under the simple transaction structure and general transaction structure,and building a credit risk mitigation tool CDS,this paper attempts to study various major pricing methods.It is pointed out that the pricing method based on the China Bond yield curve of each credit rating combined with the Jarrow-Turnbull binary tree default probability model has better adaptability and operability for the initial development stage of China’s current credit derivatives market.Based on the methods,corresponding empirical simulation studies are given.It provides corresponding references for Chinese banks and insurance financial institutions to participate in PPP project financing and use credit derivatives such as CDS to mitigate credit risk.