Credit Risk and Local Government Bonds: A Case from China

Jiguang Wang^1, and Jingfeng Li¹

¹School of Economics and Management, Shanxi University, Taiyuan, China

Cite this paper:
Jiguang Wang and Jingfeng Li. Credit Risk and Local Government Bonds: A Case from China. Journal of Finance and Economics. 2014; 2(4):113-117. doi: 10.12691/jfe-2-4-2

Abstract

Issuing local government bonds will become a main financing manner and channel of municipal infrastructure in China while its major problem is volumes and credit risk control. Based on the KMV model, the credit risk model for municipal bonds is constructed in this paper and further study the patterns its probability distribution to improve prediction accuracy. After determining the forecast standards, we compute the safe issue volume of those provinces and municipalities who had issued municipal bonds. The end is a brief analysis of the reason to its bad marketing.

Keywords:
local government bonds; KMV model; credit risk; safe issue volume

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