Research On The Application Of Credit Default Swaps In Chinese Corporate Bond Market

More and more corporate defaults have appeared in Chinese bond market so far. How to solve the corporate bond defaults has became the main problem in the bond market. Once the corporate bond defaults, investors will be facing the risk to lose the interests even their capital. In the past, corporate bond defaults were the pretty rarely things. The solutions to the defaults were mainly relying on the government, banks or the third-warranted parties and they lent the money to the company and the borrowings were turned into loans. But the credit risk had not been dispersed at all. In foreign bond market, credit risk has been avoided mainly by using the credit default swap (CDS) which are the derivative insurance products and the OTC credit derivatives. In foreign bond market, the credit risk can be transferred by using CDS and the risk of defaults can be reduced effectively. Therefore, the research on the application of the credit default swap in Chinese corporate bond market has been done in this paper in order to prevent the risk of the defaults.The research on the application of the credit default swap in Chinese corporate bond market has been done from following aspects in this paper. First, the introduction of the generation and development, the principles and the risks of credit default swap for supporting the following study has been made in the paper. Second, the analysis on the necessity of the application of the credit default swap in Chinese corporate bond market has been made from the new perspectives of the corporations, the bond investors and the pricing to be more reasonable. And the analysis on the feasibility of the application of the credit default swap in Chinese corporate bond market has been made from the new perspectives of the system, the environment of the market and the supervision. The conclusion that the application of the CDS is necessary and feasible in Chinese corporate bond market has been brought up after the analysis. At the same time, the empirical research on the pricing of the credit default swaps based on the Reduced Form Model and the Structured Model has been done separately, using the bond default samples from 2014 to 2015. And a new pricing method which is applied to Chinese corporate market combining the Reduced Form Model with the Structured Model has been proposed. Third, through the summary of the risks and causes of the application of credit default swaps abroad, the experience and lessons for the application of credit default swaps in the Chinese corporate bond market of are provided. Finally, the suggestions on the application of credit default swap in Chinese corporate bond market have been presented in this paper.