On The Pricing Of Corporate Loans In China

?The interest rate liberalization will be taking place soon in China's banking industry. In the process of this reform, how to correctly price corporate default risk will be a great challenge for banks. This thesis firstly reviews existing pricing theories and the status quo in China's banking system. The existing theories and practices are very limited in pricing default risk. Merton's Model provides a theoretical method to analyze the corporate default risk, based on the viewpoint of equity being the same as a call option on assets. The thesis develops a new Merton's type model for the structural characteristics of short-term loans in China. Applying the new model, we can get the price of default risk. The price should be combined with default probability together to decide the market risk price. The thesis mentions two methods to reach to that probability. One way is to compute Merton's distance-to-default, and the other is to use Cox's proportional hazard model. Empirical studies have been done by analyzing a bank's 150 borrowers. Some meaningful results have been got.