The Study On Risk Compensation Of RMB Interest Rate Swap Under The Perspective Of Time-varying

Interest rate swaps have flourished in China and have become the most important interest rate derivatives in China Since 2006.However,China's RMB interest rate swap market still has many problems such as insufficient liquidity of Interest rate swaps,high homogenization of institutional participants and single reference standard of interest rate which will inevitably inhibit interest rate swaps from playing an important role in terms of hedging and risk management in progress of Chinese economy.As for interest rate swap,related research mainly concentrates on the principle of Interest rate swaps,pricing theory and price influence factors.Domestic research on risk compensation for swap spreads is insufficient.Based on the lack of liquidity,the credit level of counterparties and the overall credit status of the market,the market quotation must take the liquidity risk and default risk into account for compensation.In addition,China's economy is in a period of transition,the interest rate swap market mechanism is gradually improved and promoted so that the market may contain potential structural transformation.The scattered analysis has not yet formed a systematic research of the risk compensation on swap spread.Based on the above background,this paper firstly establishes a simple multiple linear regression model and conducts significance test to confirm that risk compensation factor,the liquidity premium and the default risk,significantly affect the RMB swap spread.But the static model cannot pass recursive CUSUM test,which shows that the constant coefficient parameters of the traditional multiple linear regression model are not stable.Furthermore,this paper conducts BAR-PERRON test on the regression equation,which proves that the risk compensation factor has structural transformation characteristics in each term interchange spread regression model.At the same time,this paper establishes Time-Varying Parameter Vector Autoregression model with stochastic volatility(SV-TVP-VAR).The time-varying parameters are estimated by Bayesian inference and Markov Monte Carlo simulation algorithm,which not only can fully capture the possible structural mutations and the gradual process.But also reflects the dynamic impact of the risk compensation factor on the RMB swap spread.Meanwhile,this paper gives a realistic explanation for change of time-varying parameters.The study found that the RMB swap spread risk compensation factor has a time-varying effect on the swap spreads of each term.The impact of the liquidity premium on the RMB swap spread has a reduction effect when the overall liquidity of the market is scarce.There is a magnifying effect when the liquidity is adequate,and the short-term swap spread effect is greater than the long-term swap spread.In particular,“liquidity tight defect traps” may occur when liquidity is at a very low level.The impact of default risk on RMB swap spreads has a magnifying effect when counterparty default risk and market default risk rise,and the long-term effect is greater than the short-term effect.In particular,the “institutional” shock can mitigate the impact of default risk on long-term swap spreads.