Credit Risk Measurement And Management In Banking Based On Kmv Model

The interest rate in china has not achieved to be market-oriented, the main form of corporate financing is still indirect financing mediated by fiance institutions, which make credit risk as the most serious risk in china's commercial bank system. Accurate measurement and effective management to credit risk is prerequisite for commercial banks to make progress in risk recognization, access and control. Precise measurement of credit risk is the key to achieve effective risk management.But the internal rating system developed by china's commercial banks is more intended to screen customers and early warn risk, it has not yet directed to further development of quantity management of risk. With the financial mechanism reforms, China's commercial banks are becoming more aware of the importance of risk management and market operation for banking industry. Therefore, we need to reposit measurement and management of credit risk to establish the measurement model which is suitable to China's credit risk management level. In the paper amended KMV model and made it suit to current situation of china's credit risk. This model is right for measurement of credit risk of listed company, so the data from the listed companies after sharing reform is used to make empirical analysis on usefulness of the model and to illustrate that the amended KMV model has a strong applicability to China's credit risk measurement.These main works of this study are as follows:(1) Analyzed all aspects of characteristics of credit risk and risk management on the basis of definition of credit risk, and made further analysis of practical application of KMV model to bank's credit review, credit rating assessment, credit asset pricing.(2) Introduced different types of risk measurement methods according to traditional and current credit risk measurement models and analyzed the utilization of KMV model on aspects of credit ratings, market-oriented interest rate and prerequisite of model assumptions.(3) Illustrated theory basis of KMV model:theory of pricing of risk debt and options pricing theory. The basic idea of KMV model, the compute framework and application of the model in credit risk management were also given a discourse.(4) Data were collected from 10 ST listed companies and 10 non-ST list companies which were under full circulation after sharing reform to do empirical research. BSM model was used to calculate equity annual volatility and Matlab6.5 was finally used to calculate distance to default and theory default frequency, and then the results were analyzed.(5) Constructed the fundamental framework of credit risk management model in banking based on KMV model, for KMV model is used to measure credit risk of listed company and private company.It is impossible to construct expected default frequency and distance to default for the inadequacy of date from the breached list companies, the expected default frequency from empirical analysis is theory default frequency and may not really reflect the default of the list companies.