Credit Risk Premium Of China’s Corporate Bond

The corporate bond market of China began in 1980s. With the economic reform, the native corporate bond market is getting more and more formalized. In January 2008, the State Council agreed that the National Development and Reform Commission issued the notice on promoting the development of bond market. Simplification of procedure for issuing allows the rapid expansion of the scale. The circulation reached 236.69 billion yuan in 2008. Accelerating the development and improvement of the bond market is of great significance. The primary technical problem is the pricing of bonds.Credit spreads of corporate bonds is the yield higher than the same maturity of the risk-free interest rate to compensate investors who buy corporate bonds assumed the additional risk, In this paper, the author first introduce the theory of pricing on foreign credit spreads - the traditional regression model, structured model, simple model and the incomplete information model by comparing advantages and disadvantages. The empirical research generally are not well reflect the actual price difference, leads to "credit spreads puzzle" and the credit spreads should broke down into risk premium, tax and liquidity premium. Secondly, analyze the China’s corporate bond market and introduce the credit spreads on corporate bonds of the domestic scholars. Thirdly, focus on Shanghai and Shenzhen corporate bonds which do not contain the general characteristics of fixed-income options making empirical research respectively to find influencing factors on the spread from the risk premium and liquidity premium based on decomposition theory. In risk premium parts, sum up data of non-listed companies and listed company. In liquidity premium part, use panel data from the width, depth and flexibility. Finally, classify all the determinations motioned in the empirical research. Then establish the pricing model for predicting the corporate bond.