Study On The Pricing Of Credit Derivatives

The concentration outbreak of credit risk seriously affected the economic and financial stability, since the outbreak of the United States sub-prime crisis in2007, August. Therefor, it has become a problem for how to effectively manage the credit risk faced by financial institutions around the world. Under the background of the global credit crisis, credit derivatives became the focus of attention. It’s a essential effective management tool for the credit risk in financial markets. As one of the most important and most rapid development credit derivatives, credit default swap is the mainstream of the credit risk management tools. To study on pricing of credit default swap is the foundation of other credit derivatives pricing research. The development of credit derivatives as well as effective management of a variety of credit risk has become the focus in the study of the current domestic and foreign theorists and actual financial sector.First, this paper simply introduces the classes of the credit derivative, the main components, the role of evaluation in the sub-prime crisis and the types of risk, and then introduces the history of the pricing theory of the credit derivatives. In the second chapter, this paper mainly introduces two pricing models of credit default swap based on two pricing methods:structural model and reduced-form model. Meanwhile credit default swap is introduced in simple by the way of example. And then obtains the price expression of credit default swap in some assumptions, analyzes the main factors which affect the price of credit default swap. The third chapter conducts empirical research on corporate bonds pricing based on KMV model and binary tree model, in addition, establishes a standard pricing model of credit default swap and studies its applicability in the corporate bond pricing. The results show that both methods are suitable for our country’s credit default swap pricing. In the fourth chapter, we consider the impact of participants’behavior on the pricing of credit derivatives starting from the practice of the us sub-prime crisis. First, researches firm’s endogenous default mechanism, to determine the optimal endogenous default threshold by maximizing the value of the securities. Furthermore, builds model by introducing a jump component to determine the optimal threshold value of default. Then, through building a comprehensive model based on structural model in the framework of incomplete information, analyzes the impact of investors strategic behavior, moral hazard and adverse selection behavior on the pricing of credit derivatives.