Study On Credit Risk Measurement Of Chinese Non-Listed Companies Using Option Pricing

Banking loan is 82.9% of total funding in China and commercial banks are the main financial risk bearer in China. It is estimated that 80 percent of the banks` risk is credit risk, so the credit is the core risk of Chinese financial risks. In recent years, the developed countries have made huge progress in credit risk measurement and management, which has become quantitative-orientated, model-orientated and market- marked oriented. It is very important for us to learn and use these modern credit risk models and it will benefit a lot for Chinese financial stability and healthy development.The first part has put forward the reasons for the research and reviews the related literature. The second part introduces the theory of credit risk and its measurements and management. The third and fourth part is main part of the article. The third part does research on modern credit risk measurement models, especially focusing on option-price based KMV model and Riskcalc model which is for measurement of unlisted companies. The fourth part is about option-price based PFM model. PFM model adopts option pricing theory and embodies the information of stock prices which reflect the prediction of market. PFM model is designed by KMV Corp. for measuring and monitoring credit risk of non-listed companies. This article modifies some methods and details of the model to adapt it to Chinese situation and utilizes Chinese stock data and data from some state-owned bank to test the validity of the model in China. The result shows PFM model has some prediction power, and the prediction rate is obviously lower than those in developed countries. The last part points up the limitations of the research and offers my suggestion for further development, and also gives policy proposals.