Research On Default Risk Of Corporate Bonds Based On KMV Model

With the deepening of China’s supply-side reformation,the economic structure has entered a new stage and the systematic risks accumulated in the capital market are gradually exposed,especially the default risk of bonds.In 2014,the default of "11 Chaori bond" broke the history of rigid payment in the bond market of our country,and the risk of bond default gradually has been highlighted.As of December 17,2018,233 cases of credit default occurred in our country with the amount of default amounting to 196.229 billion yuan.Bond defaults have accelerated sharply since 2018.As of December 17,2018,112 bonds defaulted,3.2 times the number of bond defaults in 2017.Under the new situation that default samples of bonds are increasing and tend to normalize gradually,it’s meaningful for companies,investors and regulators to know the applicability of traditional methods of bond default risk measurement and how to construct more intuitive measurement indicators of bond default risk.The sample selected in this paper are 911 corporate bonds of Shanghai and Shenzhen Stock Exchange as of December 3,2018.Firstly,using KMV model to calculate the default distance.Then verify the applicability of traditional KMV model to measure default risk of corporate bonds in China based on default distance of different issuers,different industries and different corporate attributes.The results of default distance test show that default distance can identify default risk.With the worse of company rating,the relevant data of default distance(average,median)also decrease.This paper does in-depth research from the perspective of industry,a new indicator is created based on some mutual problems of companies in chemical industry in order to identify the default risks of each company more precisely.The default distance calculated by KMV model is suitable for the comparison of different bond risks,but it is not intuitive enough to measure the default risk of single bond.Besides,due to the lack of actual default database in China,the corresponding default probability cannot be calculated.Moreover,KMV model is based on the digestion of market financial information and it has certain limitations on considering short-term financial statements of issuers.Therefore,on the basis of default distance and five parameter variables in Z-score model,this paper constructs a new index to measure the default risk of corporate bonds by combining Logit model as an alternative to default probability.After empirical research,the default probability calculated by the new model is excellent in measuring the credit risk of bonds of rating companies,and has good applicability and effectiveness.Therefore,it can be concluded that the default probability calculated in this paper has great applicability and accuracy in identifying the default risk of corporate bonds in China,and provides a more intuitive reference for market investors.