Application Study On Credit Derivatives In The Credit Risk Management Of Commercial Banks

Credit risk is the oldest risk type of bank institutions, which almost lives with the credit operations of banks. With credit operations types becoming more complex and more complex, in order to reflect and deal with credit risk well and truly, both the banks themselves and the supervision authorities need more effective credit risk computation and management technologies. As to the commercial banks, credit derivatives are the appropriate new products to meet this need of commercial banks, which are new tools of managing credit risk, mainly including credit default swap, total returns swap, credit linked notes and credit default option etc. This paper is written to just make the commercial banks in China know of the new products, and make good use of them to enhance their own ability of managing credit risk.During the writing, I looked up many relevant references about credit risk and credit derivatives, which mainly come from overseas. On this base, I expound particularly the relevant conceptions about credit risk management and credit derivatives. According to the actuality of credit risk management in Chinese commercial banks, we further band them together and expound how to improve the ability of managing credit risk of our commercial banks. Then we turn to the core of this paper: the pricing of the product. Since the pricing of credit derivatives is materially pricing credit risk and based on the analysis of bonds pricing, we follow the using of integral form of continuous rate. With no arbitrage theory we educe two pricing formulas under two circs when the premium is continuous or disperse. We estimate parameters with recursive methods, which is easy with statistics software, so here we don't expound it. While we deal with the data with the least square method, and weigh the pricing errors. The result indicates this method can effectively price credit derivatives. Finally we point out the problems we may encounter during using the new products, and make the primary prospect to its application. The topic of this paper is novel and is the urgent problem of the present commercial banks, so it has especial importance. I believe it can provide useful help for our relevant scholars and the operators of our commercial banks.