The Research Of China Local Government Debt Risk Based On Contingent Claims Analysis

Public sector as one of the main participants to the market,its ability to protection against the outbreak of the financial risk and the affection of financial crisis plays a decisive role to macro financial system stability.For public sector,the performance of financial risk is mostly embodied in the debt risk of default.After the year of 2009,in order to offset the influence of the financial crisis to our country,local governments through large-scale investment to stimulating economic growth,which cause local governments debt soared in just a few years' time.As the result of massive local debt,the management is not standardized and transparent,in addition to the local governments debt directly,there is a lot of contact of the local governments contingent liabilities may be there is a certain risk of default.Therefore,the study of whether there are risks to Chinese local governments debt or not and what degree of the risk is,has strong theoretical value and practical significance.The current research on local governments debt risk mainly based on the qualitative analysis,such as the formation?the sustainability and the possible resolve methods of local governments debt risk,only a few studies for quantification the scale of local governments debt risk.Contingent claims analysis is a combination of B-S-Merton option pricing theory and the government's balance sheet analysis,which has a good measure and early warning of debt risk.According to this problem as the guidance,the paper firstly elaborated the local governments debt risk in the background and significance of the research,as well as reviews related literature at home and abroad for macro financial risks and the research methods of financial risk to determine the basic idea of using contingent claims analysis for local governments debt risk;secondly,introduce the contingent claims analysis method and related theory,construction the contingent claims analysis model based on the specific situation of Chinese local governments and analysis the debt risk;then,through the contingent claim model's main index: default distance(DD)and default probability(DP),with the related data of 2010-2015 local governments debt,to measurement the risk of local governments debt default in 2015 in 30 Chinese provinces(except Tibet)and evaluate the risk of local governments debt.On the basis of it,divided the 30 provinces,cities and autonomous regions into eastern,central,western and northeast regions of China with average distance to default(ADD),portfolio default distance(PDD)and default probability index to measure the regional debt;finally aimed at the prevention of local governments debt risk putting forward three aspects relevant suggestions from the resolution of stock debt,new debt and regulation of macro financial risk.