| Summary: | 碩士 === 國立中央大學 === 財務金融學系碩士在職專班 === 93 === Abstract
The Bank for International Settlement will implement BASEL II on 2006. This new Accord has made some big changes on the calculation and evaluation of the credit risk. It also allows banks to employ some credit risk mitigation skills. Thus, it is foreseeable that, among the commercial banks, the improvement of credit risk management ability and skill and the application of the credit risk mitigation skills will have some critical effects on bank performance and its capital savings.
This research studied the commercial banks（1）how to establish selection system for hedging and use credit risk model to select proper loan assets to avoid credit risk by using credit derivatives;（2）how to price Credit Default Swap;（3）how to evaluate the effect of –Credit Default Swap and Credit Linked Note - on its’ capital charges.
The empirical results are summarized below：
The underlying assets of the credit derivatives shall be companies with open information. Thus, we picked companies that are openly traded in the security markets for more than 3 years. We also selected companies with non-fully secured loan exceeded NT$ 100 millions, or those with industry-specified loan ratio reached 80% of bank’s net asset value. We then used KMV and Logit model to calculate for their probability of default, and CreditManager for credit value-at-risk, to select those customers with higher credit risk to be the target of credit risk avoidance.
CDS price is higher than the loan yield spread. Thus the protection buyer, unwilling to pay for this credit spread, will consider market prices for other products, such as Asset Swap, to find a price that is lower than the theoretical CDS price yet acceptable to both the protection buyer and the protection seller, to be the actual offer price.
Saving effect of capital charges on the credit derivatives will be affected by different maturity dates or currency between credit derivatives contract and loan contract of underlying assets. Basically, using CDS on the banking book, weighted index in calculating risk asset is 20%, whereas the CLN, due to its cash protection effect, has a weighted index of 0%. Both provide significant saving effect on capital charges.
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