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CREDIT RISK MANAGEMENT OF THE CHINESE KMV MODEL

Olsson Lo, Maureen and Li, Junxian (2009)
Department of Economics
Abstract
Due to the concerns of increasing need for advanced credit risk management and lacking of quantitative credit risk measurement modeling at the Chinese banks, the purpose of this dissertation is to study the feasibility of applying the Western credit risk model, the Moody’s KMV (MKMV), to China. Because of the particular Chinese considerations, such as pricing the temporary non-tradable restricted shares and lacking of default data, a modified MKMV model is suggested and tested. Firstly, the samples of Chinese public listed companies are classified into two groups: special-treated with high default risk and non-special treated with low risk. Then, the adjustments of various parameters are determined. After that, a validation test on the... (More)
Due to the concerns of increasing need for advanced credit risk management and lacking of quantitative credit risk measurement modeling at the Chinese banks, the purpose of this dissertation is to study the feasibility of applying the Western credit risk model, the Moody’s KMV (MKMV), to China. Because of the particular Chinese considerations, such as pricing the temporary non-tradable restricted shares and lacking of default data, a modified MKMV model is suggested and tested. Firstly, the samples of Chinese public listed companies are classified into two groups: special-treated with high default risk and non-special treated with low risk. Then, the adjustments of various parameters are determined. After that, a validation test on the findings is carried out. Finally, the results are discussed from three approaches: horizontal analysis, vertical analysis and regression analysis. In according to the results of regression, the theoretical expected relationships among the model parameters are significantly found in the Chinese samples. For both horizontal and vertical analysis, the positive signs showing that the model’s abilities in discriminating the good companies from bad ones and in predicting the default risk of the distress companies in China are found, but they are not significant. Therefore, it is hard to infer the practicability of the MKMV model in China as a consequence of the statistical limitations. Further studies on the unique Chinese factors, including the pricing non-tradable ordinary shares, the unclear definition of default and the absent of extensive historical default database are recommended. (Less)
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author
Olsson Lo, Maureen and Li, Junxian
supervisor
organization
year
type
H1 - Master's Degree (One Year)
subject
keywords
Chinese Banks, credit risk modeling, Economics, econometrics, economic theory, economic systems, economic policy, Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik
language
English
id
1644259
date added to LUP
2009-06-11 00:00:00
date last changed
2010-08-03 13:49:28
@misc{1644259,
  abstract     = {Due to the concerns of increasing need for advanced credit risk management and lacking of quantitative credit risk measurement modeling at the Chinese banks, the purpose of this dissertation is to study the feasibility of applying the Western credit risk model, the Moody’s KMV (MKMV), to China. Because of the particular Chinese considerations, such as pricing the temporary non-tradable restricted shares and lacking of default data, a modified MKMV model is suggested and tested. Firstly, the samples of Chinese public listed companies are classified into two groups: special-treated with high default risk and non-special treated with low risk. Then, the adjustments of various parameters are determined. After that, a validation test on the findings is carried out. Finally, the results are discussed from three approaches: horizontal analysis, vertical analysis and regression analysis. In according to the results of regression, the theoretical expected relationships among the model parameters are significantly found in the Chinese samples. For both horizontal and vertical analysis, the positive signs showing that the model’s abilities in discriminating the good companies from bad ones and in predicting the default risk of the distress companies in China are found, but they are not significant. Therefore, it is hard to infer the practicability of the MKMV model in China as a consequence of the statistical limitations. Further studies on the unique Chinese factors, including the pricing non-tradable ordinary shares, the unclear definition of default and the absent of extensive historical default database are recommended.},
  author       = {Olsson Lo, Maureen and Li, Junxian},
  keyword      = {Chinese Banks,credit risk modeling,Economics, econometrics, economic theory, economic systems, economic policy,Nationalekonomi, ekonometri, ekonomisk teori, ekonomiska system, ekonomisk politik},
  language     = {eng},
  note         = {Student Paper},
  title        = {CREDIT RISK MANAGEMENT OF THE CHINESE KMV MODEL},
  year         = {2009},
}