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Listed companies in the short-term financing bills Risk Premium

Author: DengYan From: www.yourpaper.net Posted: 2009-03-31 15:30:48 Read:
Abstract: This study of 12 listed companies issuing short-term financing bills, analyze the relationship between the distance to default and the risk premium of the short-term financing bills, found a negative correlation between the two. Distance to default than credit rating can provide more information on the risk premium, but can not fully explain the risk premium.
Keywords: short-term financing bills; risk premium; Distance to Default

Corporate short-term financing bills similar to the financing of commercial paper in the foreign currency market, the yield on risk-free rate of return credit risk premium other risk premium constitutes. I selected the 12 corporate short-term financing bonds issued by listed companies as samples, calculate distance to default by the method of the KMV model, and analyze the relationship between the risk premium and credit risk.

A model of the basis of the Institute

KMV model is a continuation and development of the Merton model [1]. The core idea of ??the Merton model: on the liabilities of the company, the stock can be seen as a call option on the future value of the assets of the company, the company's liabilities can be seen as the exercise price of the options. That the maturity of the debt, if the value of the assets is higher than the value of the debt, then the optimal strategy of the company's shareholders execution options, debt; otherwise it will not exercise the option, choose to default.

Applying KMV model need to calculate the two can not be directly observed variable values: the volatility of the market value (V) of the company's assets and the market value of the assets (考 v ), one of the calculation methods established stock Price (S) and the value of assets (V), as well as between stock returns volatility (the 考 s ) and asset value volatility (考 v ) the relationship between the equations, and then solving the equations:

(D) shows the probability function of the standard normal distribution X on behalf of the company's liabilities, r the risk-free rate, 而 indicates the maturity of the options. ) V and 考 v calculated, KMV model [2] defines the distance to default (DD) as follows:

Where, X is the liability of the company, usually referred to as a "breach of the border. E (V) is the predicted value of the asset value of the next period, usually considered in the practical application is the case after 1 year. Finally, KMV model is mapped to the distance to default experience of default frequency, regularity is the smaller the corresponding default frequency the greater the distance to default, the credit risk is lower; default frequency corresponding to the smaller distance to default is the greater, the higher the credit risk. Therefore, we can be a breach of the size of the distance preliminary discriminant credit risk level of listed companies.

Second, the empirical approach

(A) short-term financing bills sample selection

KMV model requires the public offering of securities prices and income volatility data as input variables, so we choose short-term financing bonds issued by listed companies as the object of study for a period of 1 year. The basic situation is as follows in Table 1.

(B) Description of data

We each trading day's closing price to calculate the volatility of stock returns of listed companies, stock price data from CCER (Xenophon) economic and financial databases. The corporate liabilities data from the the upfront financial statements of listed companies, the parent company financial statements finishing calculated, long-term liabilities to current liabilities plus 50% as a breach of contract boundary X central bank bill rate as the risk-free interest rate, maturity date 而 1 on an annual basis.

Ease of calculation and presentation of liabilities made unitized processing, that is, divided by the total number of shares of the company. (3) shows that default distance calculated with this method is equal to the total calculated distance to default, and is not subject to the total number of shares changes.
(C) of the stock return volatility and stock price calculations

Half the interval, with the ex-rights price of each short-term financing bonds issued before the date of the stock returns volatility (excluding the first trading day after the ex-dividend date yield). Can not be observed not listed on the price of the outstanding shares of listed companies, the model requires that the overall price of the entire equity interest in, the the author draw has completed the split share structure reform achievements, averaging the closing price 10 days prior to the issue of de facto then divided by 1.3 as equity prices. For example, the 05 Shanghai electricity CP01 Release Date September 8, 2005, the calculation of September 8, 2004 to 2005 daily stock returns and volatility, and then the year as volatility. Calculate the daily stock yields: R = ln (S t / S t-1 ) Hutchison 考 R sequence yield the standard deviation, the annualized volatility 考s =.

Third, the findings

Maple programming associated simultaneous solution of equation (1), (2), the implied value of the assets of the Company and the volatility can be obtained, and then calculate the distance to default, and the results are shown in Table 2.

The relationship between the distance to default and the risk premium in Figure 1.

Can be seen from Figure 1, the degree of dispersion of the risk premium financing bonds issued before May 2006, focused on the top right corner, there is a certain degree of negative correlation with the distance to default. Financing bonds issued after May 2006, focused on the lower-left corner, the more obvious negative correlation with the distance to default, and a high degree of dispersion of the risk premium. This shows that over a period of time after the pricing of short-term financing bills reflect the differences of the different credit risk, and Wang Junping [3] found that consistent. After removing outliers 05 Maanshan Iron and CP01, the Spearman correlation coefficient between the distance to default and the risk premium is -0.333, indicating negative correlation between the distance to default and the risk premium, that is, the smaller the distance to default, investors the greater the risk premium required. And Table 1, it is found that the default distance apparently explain the differences in the risk premium is more than the credit rating.

IV Conclusion

I found that the distance to default than credit rating can provide more information risk premium, and breach of contract there is a negative correlation between the distance and the risk premium, the part of the risk premium is determined by the credit risk, credit risk can not explain all of the risks premium, there are other factors.


[1] Merton, R. C. On the pricing of corporate debt: the risk structure ofinterest rates [J]. The Journal of Finance, 1974. Vol. 29, No. 2, pp. 449-470.

[2] Anthony Saunders. Credit Risk Measurement - Risk valuation method the other paradigm [M]. Beijing: China Machine Press, 2001.

[3] Wang Junping. Short-term financing bonds credit spread analysis [J].
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