Exploration On Application Of Credit Default Swaps In China

As a risk that the debtor may default, credit risk is an important consideration for banks, bond issuers, and bond investors. The conventional methods of managing credit risk, such as diversification, bank loan sales, and asset securitisation, offer only a partial solution to controlling credit risk exposure. In recent years, the growing market for credit derivatives has provided powerful new tools for managing credit risk that are less costly and more effective than traditional methods. Lenders such as commercial banks and investors such as mutual funds can use credit derivatives to hedge against adverse moves in the credit quality of their investments.As a main kind of credit derivatives, credit default swap is a new method to manage credit risk. Its main idea is to transfer the credit risk to those investors who would like to bear the risk through agreement. In return, it gives out some profit or fees. So credit default swap can reduce the concentration degree of credit risk in the prerequisite of not influencing the relationship with customers, therefore avoid the credit risks effectively. Credit default swaps can satisfy the urgent demand of modern credit risk management and the financial market reform. Exploration on credit default swaps will help the introducing of credit derivatives into our country, thus will give full play to their function of shifting credit risk, making this new risk management tool serve our financial market early.This dissertation consists of six chapters. Chapter 1, introduction. Through the brief introduction of definition, current development and market structure and comparison with other credit derivatives, we get to know credit default swap briefly. Chapter 2, feasibility. The author will analyze the characters of credit default swaps more deeply, and then compare them with traditional credit risk control methods, thus point out the necessity and feasibility of application of credit default swaps in our country. Chapter 3, pricing. Analyse of pricing theory of credit default swap build a foundation for its product design and trading in our country. Chapter 4, product design. According to the master agreements of ISDA, study the contract design of credit default swap and investigate the tax, accounting, legal and regulation problems. Chapter 5, risks and their controlment. This chapter explore those risks faced by credit default swaps and their controlment. Chapter 6, application. Through examples, showing the application of credit default swaps.