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Empirical Research of Credit Risk for the Chinese Listed Companies Based on KMV Model

Author: LuoJun
Tutor: FengYongFu
School: Southwestern University of Finance and Economics
Course: Finance
Keywords: credit risk KMV model Distance to Default Expected Default Frequency
CLC: F276.6;F832.5
Type: Master's thesis
Year: 2009
Downloads: 249
Quote: 3
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Abstract

Ⅰ.Summary and main pointsThere are credit risk, market risk, liquidity risk, operating risk, law risk and so on. The credit risk is one of main risks that the commercial banks face in the management process.The traditional measure and management methods of credit risk mainly include: Expert Method (5C), Credit Rating Method (OCC Credit Rating), Credit Scoring Method (Multiple Discriminate Analysis, Linear, Logit and Probit Regression Model) and Neural Network Model.The traditional measure and management methods of credit risk have not only been able to adapt the new situation and the new question which arises in today’s society, but also cannot satisfy what is needed in the scientific quantification measure and the effective management of the credit risk. The banking industry in the western developed country has already introduce the great advanced internal credit risk measure model which use all information what can be obtained to valuate the enterprise credit condition. There are mainly four modern models: KMV model (based on BSM thesis), Credit Metrics model (based on VaR), Credit Portfolio View model (based on macro variables), Credit Risk+ model(based on Insurance Actuarial Model).Compared with the West commercial bank’s credit risk management level, there still are a great gap between domestic banks and west commercial banks, especially in risk quantification aspect disparity. As far as our country’s commercial bank is concerned, the bank internal rating is still in initial stage, internal rating system which the commercial bank develops mainly uses customer selection and risk warning, not yet use credit risk quantification management. With the world becomes more and more freedom, open and competitive, It is very urgent to improve the credit risk management level of domestic banks.Considering the lack of the credit data of financial market in China, KMV model, which can directly use data from stock market to measure credit risk, has extensive application. This thesis selects several listed companies, and use their financial information and transaction data to measure their credit risk by the KMV model. We find that the KMV model can be used to identify the listed company’s credit risk quite well, but we must improve further the KMV model to adapt to Chinese actual situation.Finally, the thesis gives some suggestions on the KMV model application in China.Ⅱ. Main contribution of the thesis1.The thesis focus on a very urgent and important problem in Chinese commercial banks and so it is much valuable.2.The thesis summaries the main methods and models in the history, and analysis the applicability of the four modern credit risk models in Chinese market.3.The thesis adopts two lines to do empirical research, and educes effective conclusions.4.The thesis gives three suggestions and do contributions to the credit risk management of Chinese commercial banks.

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CLC: > Economic > Fiscal, monetary > Finance, banking > China's financial,banking > Financial market
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