| Born in2012, Chinese SME private bond market is still in its infancy. The biggestchallenge faced by this market is difficulty in issuance and sale. The root of this problemlies in its high risk and low liquidity. Therefore, a mechanism to transfer risk andprovide liquidity is in urgent need. Motivated by the practical need of Chinese SMEprivate bond market, I design a CBO product backed by SME private bonds, which canallow bond holders to transfer credit risk and promote the liquidity of this market.Besides, as the first exploration into design and pricing of CBO in China, this thesisprovides a new direction for the development of Chinese asset securitization.I select five existing private bonds issued by Chinese SMEs as the underlyingassets and divide the CBO into three tranches: senior (80%), mezzanine (15%) andequity (5%). To determine fair premium of each tranche, I adopt the KMV-copulaapproach. I also do a sensitivity analysis with respect to the key parameter of pricingmodel, recovery rate. Furthermore, based on simulation, I analyze the profitability ofissuers and describe the risk-return profile of different investors. In addition, I discussthe execution concern caused by institutional environment and present some practicalsolutions. Finally, I probe into the risk control strategy and provide my suggestion onfurther improvements. |
