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The Generation and the Countermeasure of the Credit Risk in the Aspect of Information Asymmetry in Our Country

Author: MengYan
Tutor: ZhangYiShan
School: Jilin University
Course: Quantitative Economics
Keywords: Asymmetric information Credit Risk Moral hazard Expected return Credit markets Adverse selection model Corporate defaults Repay the loan Probability of success Constraints
CLC: F832.2
Type: Master's thesis
Year: 2004
Downloads: 364
Quote: 0
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Abstract


Market economy is a credit economy on a certain level any economic body must rely on credit and have connection with other economic bodies. But because of the existence of market ineffectiveness and market inner defects, it makes market to be a kind of irrational market that establishes on the foundation of information asymmetrical information. The credit risk caused by such an asymmetrical information, in each kind of economic system,occurs and take an effect. Western developed countries have formed a set of relatively effective methods to solve such a problem during the hundreds of years of develepment of the market system. However, in our country, during the transition from the planning economy to the market economy, this issue cannot have been solved well. Through the model of Proxy – Deputy between banks and enterprises, this paper uses the games theory on the basic theory of modern information economics to study the deep causes of the credit risk for our country and puts forward some opinions and suggestions for the control management of our country. To study credit risk origin and countermeasures from information asymmetry theory, this paper, mainly utilizing game theory as a tool, founds the model of Proxy - Deputy by agreement between banks and enterprises. Usually, in credit market, the information resources that grasped by the grantor who grants credit to the credit-receiver and the credit-receiver is quite different, the credit-receiver has more knowledge for its own operation condition and disposition condition of credit capital, while the grantor is quite difficult to get such a kind of information comparatively. In the credit market, enterprises that possess private information and are in advantage position, are the deputy part. Banks not possessing private information to be in the inferior position, is the proxy part. The <WP=44>model founded finally includes contrary option model and morals risk model. 1、Counter to option model If a enterprise has some investment projects, every capital of project needs is , enterprise with no reserves must borrow money from bank, loan interest rate is , and every project has two possible results: success or failure and the profit of success is R, the profit in failure is , the probability of given success is , at the same time, assumption investment project has identical profit, worth T. So the Profit Function of enterprise is The expectation profit of enterprise is The average success probability of all projects that have applied bank loan is <WP=45>thenEvidently, the higher interest rate is, the lower the average success probability of project is. That is the lower the quality of project is, the bigger the probability of promise breaking is. The higher interest rate signifies lower successful probability and greater risk. Therefore, the project of high risk has driven the project of low risk producing contrary option. 2、Moral risk model Moral risk is that, in contract enforcement, one side have concealed action information, which has caused loss of another side, for asymmetrical information. On credit market, moral risk is that information is symmetry while signing a contract, but after signing a contract, enterprise does not invest according to contract, or not return loan principal and interest etc. after making profits, producing risk for breach of contract. As the deputy part, the expectation profit function of the bank is:：the net profit of bank when enterprise selects scheme in state. <WP=46>Restriction conditions:(IR)(IC)　：the net profit of bank when enterprise selects scheme in state.：distribution function corresponding With scheme ：The action schemes set that enterprise can select ：Represents the success state of project: 1 is successful and 2 is not successful.(IR) is the participation restraint, the expectation profit of investment is higher than the profit when not invest.(IC) is

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Banking system and business
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