Credit Risk Premium Of China's Corporation

When the corporate that issues bonds is unable to repay the debt, credit risk will lead to a loss suffered by investors, in order to ensure that investors are still willing to engage in high-risk investment bonds, investors will need the compensation of the risk. Credit risk premium is generally considered to be compensation for credit risk. Credit risk premium is the differences between the yields of corporate bonds with credit risk and Treasury bill relatively with no credit risk (that's credit spread). In China, because of the unseasionable pricing of the credit risk premium, the inventors can't realize exactally the risk of the corporate bonds, and the corporate that issues bonds would like to price the premium higher commonly to attract more inventors.This passage will analyse the applicability in our country of the credit risk premium pricing formula which based on the Merton model, calculate the premium value of our country's corporate bonds, and analyse the factors of credit risk premium by useing the statistical software-Eviews. Through a series analysis, we find that the credit risk premium pricing formula which based on the Merton model is not very fit to our country's situation, but Merton model is very important for the farther research and analysis.