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Empirical Analysis on Credit Risk Measuring of Bond in China

Qihong Chen, C Ecurities

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Abstract

Based on the KMV model and Delianedis-Geske(2001),we measure the credit risk of 05guohang bond.Using data of the financial statement of Air China Limited at July 23,2007,we estimate the credit spread of 05guohang bond at July 23,2007.Then,we give out our viewpoint in terms of the empirical results: because bonds in China are not credit bonds,but collateralized bonds by commercial bank,the difference of 517 bps between the estimated spread and the actual spread in the market should be digested by the credit of Agricultural Bank of China.

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What this paper is about

Based on the KMV model and Delianedis-Geske(2001),we measure the credit risk of 05guohang bond.Using data of the financial statement of Air China Limited at July 23,2007,we estimate the credit spread of 05guohang bond at July 23,2007.Then,we give out our viewpoint in terms of the empirical results: because bonds in China are not credit bonds,but collateralized bonds by commercial bank,the difference of 517 bps between the estimated spread and the actual spread in the market should be digested by the credit of Agricultural Bank of China.

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Available abstract

Based on the KMV model and Delianedis-Geske(2001),we measure the credit risk of 05guohang bond.Using data of the financial statement of Air China Limited at July 23,2007,we estimate the credit spread of 05guohang bond at July 23,2007.Then,we give out our viewpoint in terms of the empirical results: because bonds in China are not credit bonds,but collateralized bonds by commercial bank,the difference of 517 bps between the estimated spread and the actual spread in the market should be digested by the credit of Agricultural Bank of China.

Key concepts: Bond, Credit risk, China, Collateralized debt obligation, Bond market, Credit valuation adjustment, Credit spread (options), iTraxx

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