Research On Pricing Of Credit Derivatives Based On Game Equilibrium Theory

Credit risk is one of the most significant financial risks in the market, and thecontrol of this risk has becomc a crucial problem confronting bank and its tradingcounterparties. The clustering outbreak of credit risk events since American financialcrisis heavily affected the stability of financial development. Therefore, the effectivemanagement of the credit risk has bccome a difficulty facing the financial institutionsof many nations. However, credit derivatives can be a helpful tool to solve and dealwith these problems and difficulties.The pricing theory is the core of credit derivatives concerning its development.The development of credit derivatives market in our country is only in a beginningstage and the information asymmetry is very serious’, so its a great need to fix andcomplete the pricing model of credit derivatives. Based on the theoretical viewpointanalysis of derivative trading counterparies information asymmetry, the paperapplies the dynamic gaming theory to caculate the default threshold which has aninduence on default probability, then the final pricing is deducted based onfundamental modeling. This analysis structure is quite different from the assumptionthat the structural defualt threshold is a constant, while this also different from theanalysis angle which focuses on the infurmation assymetry between debtor andcreditor. In sum, the pratical sense of this paper is to make the pricing procedure ofcredit derivatives more accurate and meaningful, which also has a big influence onrelated theory development as well.The first two chapters introduce the history of the pricing theory of the creditderivatives from three aspects: Structural model.Reduced-form model and unifiedmodel. Through the analysis of pricing models, this paper introduces the differentresearch method in this part.In the third chapter, based on the control and management of the crcdit risk, weintroduce the credit derivatives market and the classes of the credit derivatives. In theend of this chaptcn we introduce some related theories about the pricing models of credit derivatives.In the fourth chapter, the Merton model and FPM model are introduced in detail.In the fifth chapter, we consider the pricing problem for CDS with asymmetric information. In this part we analyze the game theory model of credit derivatives transaction and derive the pricing model for the CDS under the basic models. In the end of this chapter, this paper operate the comparative analysis between the new pricing model and the basic modcls-Mcrton model and FPM model.Finally, the main idea is to make a summary on the whole paper. With the intensive research about related topics, the thesis conclusions can be summarized as followed, firstly, the trading procedure of credit derivatives exists information asymmetry phenomenon, there is a intimate relationship between default threshold and countcrparties, when the trading seller is quite confident about the earning ability of the buyer, the default threshold is low, and the default probability is high, as a result, the pricing of credit derivatives will be higher. From the aspect of trading buyer, it is significant for the transaction accomplishment to build up a excellent public-appearance and transmit positive information to investors. For the development of credit derivatives market, we must make a diligent effect on the aspects of reasonable pricing, product design, and information asymmetry. And the product design and pricing should satisfy the interest of counterparties which arc the key elements of credit derivatives market development.