Credit Derivatives And Exploration On Application Of Credit Derivatives In China

Credit derivatives, new credit-protection practice arising in 1990s, arefinancial instruments designed for managing or shifting credit risks. They can separateand transfer credit risk of the assets in order to reduce the holder's risk exposure. Ithas great value to credit risk management of China's banks. This paper gives thesketches of credit derivative instruments and introduces the risks of credit derivativeinstruments. It analyzes the research method, which means the pricing theory of creditderivatives, and builds a foundation for its product design and trading in our country.This paper also analyzes the exchange function, hedge function and restructuringfunction in shifting credit risks of bank loan through application examples, andanalyzes the change of return on capital gains since these products are used. Thispaper illuminates the significant meaning of using credit derivatives in China's bankscredit risk management on the basis of statistic datum of China's banks' bad debt. Itprovides references in credit derivative instruments' application, risk management andtheir positioning in commercial banks' credit and debt relationship as well. Itconcludes that the application of credit derivatives is significant meaningful for thecredit risk management. Further more, the application will meliorate the balance sheetof China's banks. It is believed that developing credit derivatives will be the logicaloption since the opening up of our financial industry develops swiftly and the reformin our financial system continues to deepen.