| Credit default swaps, as the most popular and innovative credit risk managementtools recent years, which can help the investors to prevent, transfer, hedge andconfigurate credit risk efficiently, has developed rapidly and successfully. In October2010, the National Association of Financial Market Institutional Investors (NAFMII)officially launched Credit Risk Mitigation Tool, which is known as credit defaultswaps with "Chinese characteristics", namely "China CDS".Credit Risk Mitigation Tool, abbreviated as CRM, is a variety of financialtechnologies including stripping, hedging and optimal allocation of credit risk. CRMis constitutive of two core products named credit risk mitigation contracts(CRMA)and credit risk mitigation warrants(CRMW) and other simple and basic creditderivatives to reserve the innovation and research space. The CRM buyer makes aregular or one-time premium payment to the seller in the duration of contract, andwhen a credit event is triggered, the seller should compensate the buyer the loss valueof the reference asset. CRM helps the credit asset owners to take the real time,initiative and proactive management of credit risk.CRM plays a key role in the global credit risk management, however due to theobjectivity, infectivity, income bias as well as the lack of data acquisition, pricing ofCRM is very difficult. Based on the RMB credit derivatives market, this articlediscusses the contracts design, price factors, pricing methods and empirical researchescombined with the specific characteristics of Chinese financial markets. Moreover,this paper perfects Jarrow-Turnbull Model and configurates parameters, providing atheoretical basis for CRM pricing in circulation and contracts cash flows calculation.Finally, it raises the thinking about key issues such as risk-free rate, probability ofdefault and development suggestions based on the empirical analysis. It has importantpractical significance for the development and perfection of the Chinese financialmarkets. |
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