Credit Risk Study Of Listed Companies In China Based On KMV Model

Credit risk is one of the main risks of the banking industry,It not only affects all areas of social and economic activities,but also impact on economic development and macroeconomic policy-making in a country.Credit risk has always been the core of risk management,Effective credit risk management has always been considered the key to competitive and sustainable development force of the entire banking industry and the financial industry,even a country’s financial system.At present,our credit risk management concepts and techniques have a big gap with mature markets abroad.In particular, quantitative models of credit risk research is in its infancy.2007subprime mortgage crisis triggered a global financial crisis,National financial institutions take more attention to credit risk management.Measurement of credit risk experienced the process from the simple qualitative analysis to linear and nonlinear models based on financial indicators,and then to credit risk quantification model based on modern financial theory.Current,credit risk measurement models widely used in developed countries are mainly KMV model,Credit Risk+model,Credit Metrics model and Credit Portfolio View model.Restricted by various conditions,the application of some modern risk management models still have some limitations.Lack of credit rating mechanism makes Credit Metrics model and Credit Portfolio View model difficult to apply to our country. Credit Risk+model is also difficult to predict the default rate in the our credit market. KMV model’s data are derived from the publicly financial data of the listed company. Relatively simple calculation method is more suitable for our country credit markets.This paper learn from the international advanced listed companies on the credit risk measurement techniques.In the study on the basis of the relevant literature,combined with the actual situation of Chinese listed companies,KMV model will be used to measure the credit risk of Chinese listed companies.To observe the applicability of KMV model in the measurement of credit risk of Chinese listed companies.We will conduct a comparison with the KMV model and several other internationally popular credit risk measurement models.Then, the KMV model is analyzed in detail.The basic idea of KMV model:Distance to default is the relative distance between the expected value of the company’s assets and the default point.The greater the distance to default,the smaller the default probability of the company,on the contrary the greater.Based on the KMV company’s huge default database,KMV model established a correspondence between the distance to default and the historical probability of default. So as to arrive the expected default frequency.KMV model is one of the most popular international credit risk measurement models.Merton corporate debt pricing theory and Black-Scholes option pricing theory is its theoretical basis.It has a strong theoretical background and it provides a more authoritative scientific proof of the model.The KMV model is applied to measure the credit risk of Chinese listed companies.Our credit risk management capabilities will be significantly enhanced.Next,the paper analyze the assumptions and parameters of the KMV model.According to the public financial data such as the equity value of listed companies, the equity value volatility, debt maturity time, risk-free interest rates and the book value of liabilities to estimate the asset value of listed companies and the asset value volatility.Further calculate the distance to default and the default probability of listed companies.Quantitative analyze the credit risk and it is very forward-looking.Then, we decompose the calculation steps of the KMV model.First,use the company’s stock price, earnings per share,tradable shares and non-tradable shares to calculate the value of the company’s assets and use stock price volatility to calculate the value of the assets volatility. Second, according to the company’s liabilities to calculate the default point.Third,we calculate the company’s distance to default and expected default frequency.In accordance with the first two steps of the calculation of the asset value and asset value volatility.Finally,we use positivism analytic method.In the12industry of A-share market,we selected24listed companies to conducted empirical research.Among them,12ST companies as the default group,12corresponding non-ST companies as a non-default group.Use EXCEL,MATLAB,SPSS and other software for analysis.Through compare the distance to default between default and non-default group,analyze the size of credit risk. Verify KMV model is applicable to measure the credit risk of listed companies in China.According to the characteristics of China’s economic situation,by adjusting the default point and asset value growth,established a revised KMV model.Based on the empirical results of the comparative analysis of KMV model found before and after correction,differences in distance to default is more significant.The above analysis shows, KMV model in the theory and practical application are suitable measure of the credit risk of listed companies in China.