The Modification Of Stock Default Distance Based On The Price Limits

The system of Price Limits is present in many countries securities market, and the main function is stabilize of the prices of securities trading market, controlling the excessive volatility in the securities markets, and stabilizing the investors1 psychology. This system is still a kind of artificial measure, which would intervene the normal trading in the market in some degree and even lead to share price distortions.Price Limits would cause some negative effects on individual stock mainly in the stock price and trading volume. And this effect is likely to lead the distortion of equity volatility estimates, and produce the result from the company's default behavior deviates from normal levels. This time, the KMV model cannot evaluate the credit risk level of the target company accurately.Based on the above described assumptions logic, this paper insisted the combination of theory and empirical methods to find a correction method. This method can correct the deviation of volatility under the system of price limits, thus correcting the distortion of default distance calculation. The article also emphasis on the testing and promotion of correction method, and strive to achieve theoretical and empirical support each other. Based on the logical thinking of theory, empirical and testing, the article is divided into three sections:Theoretical part is discussing the background and significance of the article, reviewing the current academic literature, analyzing the theory of Price Limits and KMV model. And at the empirical part, this paper improves the calculation method of default distance in securities market by improved data, model updating and explanatory variables in an optimized manner. Finally, the last part proved the effectiveness of the improved method, and by extension methods to verify the correctness of this idea.The reason why choose this topic is that we can explore the impact of price limits during the model using, which from the perspective of credit risk point of view, has significance. The modifying method which the paper choose has take into account the various factors such as share price, trading volume and volatility, etc.. It contributes to apply this method to other companies. In this paper, there are some shortcomings. In the future, these shortcomings will be improved by in-depth study.