Credit curve estimation and corporate bonds in the South African market

Clift, Peter-John (2020-03)

Thesis (MCom)--Stellenbosch University, 2020.

Thesis

ENGLISH SUMMARY : Accurate fair value measurement of financial instruments serves as one of many mechanisms to enhance the integrity of financial institutions, particularly as it relates to counterparty credit risk. In this study, specific reference is made to credit spreads and the information that can be inferred from it for the purpose of fair value measurement. Market observable information, such as traded corporate bonds, together with accounting and share price information related to the issuers of these bonds, are used in order to construct credit spread curves. These credit curves are used as an input to calculate the value of corporate bonds, but can also be used in the calculation of measures related to counterparty credit risk management like the probability of default and loss given default parameters. Currently there is no market standard model that can generate these credit curves. In this study, several models are introduced that may be appropriate to model credit spreads, as well as considerations for their application across a range of possible issuers. The accuracy of each model is tested by using these models to price newly issued corporate bonds and evaluating the resulting price difference from what is observed in the market.

AFRIKAANSE OPSOMMING : Die akkurate billike waarde waardering van finansiële instrumente dien as een van vele meganismes om die integriteit van finansiële instellings te verbeter, veral ten opsige van teenparty kredietrisiko. In hierdie studie word spesifiek verwys na die krediet premie op korporatiewe effekte en die inligting wat daaruit afgelei kan word vir die doel van billike waarde bepaling. Markwaarneembare inligting, soos verhandelde korporatiewe effekte, sowel as rekenkundige- en aandeelprysinligting wat met die onderskrywers van hierdie effekte verband hou, word gebruik om krediet spreiding kurwes te op te stel. Hierdie krediet kurwes kan gebruik word om die waarde van korporatiewe effekte te bepaal, sowel as om parameters wat verband hou met die bestuur van teenparty kredietrisiko, soos waarskynlikheid van wanbetaling en die verlies gegewe wanbetaling, te bereken. Daar is tans geen standaard model in die mark wat hierdie krediet kurwes kan genereer nie. In hierdie studie word verskillende modelle wat moontlik toepaslik kan wees om krediet premies te modelleer, asook oorwegings vir die toepassing daarvan vir 'n verskeidenheid moontlike onderskrywers van korporatiewe effekte voorgestel. Die akkuraatheid van elke model word getoets deur van hierdie modelle gebruik te maak om nuut uitgereikte korporatiewe effekte te prys en die gevolglike prysverskil te evalueer teenoor wat in die mark waargeneem word.

Please refer to this item in SUNScholar by using the following persistent URL: http://hdl.handle.net/10019.1/108003
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