Credit Enhancement Level The Nature And Pricing Of Research

The subprime crisis in 2007 developed into a worldwide financial crisis in one year. The excessive asset securitization is seen as the "chief criminal". This calls for a new round of understanding and research of asset securitization in the academic world. Credit enhancement, as a key part in the process of asset securitization, can efficiently improve the credit rating of a securitized product. The research on credit enhancement has a significant meaning to the theoretical study and practical development of asset securitization.Unlike in the United States, asset securitization is still in its infancy in China. Therefore researchers need to start from the very basics and meanwhile closely follow the latest updates in this area. This paper introduces and studies the basic definition, categories and functions of credit enhancement, as well as gives policy suggestions regarding the development of more efficient credit enhancement techniques, based on the analysis of the current financial crisis and the asset-backed securities that have been issued in China so far. Moreover, this paper tries to apply the famous credit risk measurement model, KMV model, to propose a new pricing approach of external credit enhancement from the perspective of option pricing theory. It is the author's best wish to make a slight contribution to the research of credit enhancement in China.