Research On Moderate Scale Of Bond For Local Governments With KMV Model

In 2014,when Views by the State Councilonthe Strengthening of Management of local government debt(2014)No.43article was launched,debt consolidation in local governments began.And in early 2015,when Budget Law of China was amended,local government swere authorized to issue bonds.Since then,sudden explosion of issuance,together with the debt issued by the Ministry of Finance to stimulate economic growth during financial crisis,has posed certain pressure.Therefore,how to keep a reasonable control on the issuance of local government bond has been particularly anurgent problem for China.This thesis,standing on the perspective of credit risk and based on the KMV model,figure south emeasurement of credit risk of local government bond,and finds out its properissuanceafter calculating advisable default frequency.Meanwhile,the issuance of government bond of the country as well as individual provinces,autonomous regions and municipalities will beestimated inempirical research.The contents of this thesis are as following:Firstly,based on the related researches on local government bond athomeandabroad,the thesis will give a clear definition of local government tbond.Brief introduction to the basic information and history local government bond will be presented and distinction between debt scale and bond scale will be made.Secondly,the thesis will analyze the issuance and credit risks of local government bond,for instance,how factors such as fiscal revenue influence the issuance of local government bond and what kind of relation between the current issuance and the increasing credit risks.Thirdly,the thesis will,on the basis of the KMV model,conduct empirical analysis on the proper issuance of local government bond.The KMV model will be introduced,and further applied to measure the model default frequency and to figure out advisable issuing size for individual provinces,autonomous regions and municipalities.Finally,the thesiswill,in view of improving legal system,strengthening examination and approval,establishing an information disclosing system,advancing credit system and establishing early warning system,give a ppropriate counter measure and suggestion on controlling the scale of local government bond to reduce the risks of default.