Research Of Market Risk Control Method About Supply Chain Finance Based On The Financial Derivatives

Supply chain finance is a combination of the physical supply chain and the financial supply chain. The bank in the supply finance provides a one-stop and closed service of credit for the borrowing enterprise which is backed by the core company of the supply chain, at the same time the borrowing company can get a low borrowing rate because of the specific supply chain, the true trade background and the monitor by the third party logistics enterprise. The credit model here breaks the pattern that the bank, the borrowing company and the third party logistics enterprise participates in the capital flow, the information flow and the logistics of the supply chain separately. These advantages make supply chain finance be adopted rapidly as it appeared.In the supply chain finance business, loan-to-value ratio is still a core risk control variable of the bank. Compared with the traditional credit, the bank offers a higher loan-to-value ratio to the borrowing company because of the guarantees by the core company, the monitor by the third party logistics company and the closed self liquidating of the credit model. But a higher loan-to-value ratio can bring more losses when the supply chain is in shock or the occurrence of the industry’s crisis including hugely fluctuating prices of the pledged goods, here the guarantees by the core company is invalid and the borrowing company is likely to default. Therefore, on the one hand, how to decide the loan-to-value rate given the market price of the pledged stock is fluctuant randomly must be solved; On the other hand, the study on the loan-to-value in the supply chain finance still can’t avoid the risk of default faced by the bank. One is the loan-to-value ratio as a means of market risk control is invalid when the price of the collateral swings wildly, another is that if we cut the loan-to-value ratio to reduce the default risk of the borrowing company will conflict directly with the supply chain finance itself. In summary, the further development of supply chain finance needs to improve the methods of risk control, but the risk control can’t simply rely on the control of the loan-to-value ratio, it is necessary to introduce other solutions.At the same time, the financial derivatives like credit default swaps, futures and options are in booming as the financial market is growing openness. In this paper, we consider the combination of the derivative instruments and the supply chain finance, design a new business model to explore the market risk control methods of the supply chain finance business, then through the establishment of a new model to the study whether the derivatives can guarantee the profit of the bank and also improve the loan-to-value ratio. The research finds that the derivatives can be applied in the supply chain finance and can guarantee both the expected return of the bank and the loan-to-value ratio on certain conditions.