Research On Risk Assessment Of SME Private Debt

In recent years, with the development of China’s market economy, China’s bond market is growing rapidly. In June 22, 2012, “The Pilot Program for SME Private Debt" was officially launched. The rapid development of SME private debt market is not only benef icial to the improvement of China’s bond market, but also conducive to the harmonious development of the money market and bond market. However, all kinds of risk problems are increasingly outstanding in the process of rapid development of SME private debt. It becomes more and more important for how to manage and measure the main risk of the SME private debt at this stage. In this context, the author conducted research on the measurement of the interest rate risk and credit risk, which are two kinds of main risks of SME private debt.Firstly, the author reviewed the classic measurement models of interest rate risk and credit risk. Through a comparative analysis of the commonly used assessment models, the author chose Duration and Convexity model and Credit Metrics model, which are applicable to China’s SME private debt market. The author also had a thorough introduction of the principles and evaluation steps of the two models, which paved the way for the empirical analysis.Secondly, based on the Wind Info’s statistics of China’s SME private debt, the author conducted analys is of the issuance, issuers, industry, location, and guarantee of the SME private debt. Through the analysis, the author summarized the advantages and the challenges of the China’s SME private debt.Thirdly, the author selected some active SME private debt, with the analysis of the relationship between the yield volatility of SME private debt and the market interest rates, the author discovered the yield volatility was sensitive to the market interest rate and lack of liquidity would inhibit the yield fluctuation amplitude. Then the author assessed the interest rate risk with Duration and Convexity model. Through comparing with corporate bonds, the author discovered that the interest rate risks of SME private debt is relatively lower. Meanwhile, the author conducted qualitative analys is of the credit risk of the sample bonds with the Credit Metrics models. The results showed the credit risk of SME private debt is generally high and the distribution of loss value shows with the feature of peak fat-tailed.Finally, based on the research, the author made recommendations to improve the risk management of China’s SME private debt.