The Research On Default Risk Of Corporate Bond

Incomplete information model is one of the most advanced credit risk model to calculate default rate. It believes that the information investors can get from markets is incomplete. However, investors can accurately measure the default rate of corporate bonds through market information when the capital market is effective. It removes some unreasonable hypothesizes of structural model and reduced form model and considers that companies have default trend at all times which depends on default rate, not only on the maturity. Furthermore, it believes that the default boundary estimated from experienced data is not reliable. Whether the corporate bond defaults depending on the volatility of it asset value. For measuring our corporate bonds default rate more accurate, we test one of situation of incomplete information model (that is the investors have incomplete information both on firm assets value and default boundary). The results indicate: (1) the volatility of firm assets value is the key factor. It means the effectivity of capital market is very important when we apply incomplete information model. That also means the fluctuation of the stock price should reflects the fluctuating of firm assets value timely. (2) Default rate in incomplete information model is higher than in Modern model. (3) Incomplete information model doesn't consider these factors beyond market, such as collateral. With collateral, incomplete information model may estimate default rate a little higher.