Endogenous factors and credit risk: research on the expansion and application of theoretical models

As the credit risks of domestic and foreign financial assets have increased in recent years, the studies on both credit risk models and credit risk theory are attracting more attention from the academics and the industries. Note that there is a significant deviation between the theoretical results of the existing credit risk models and the actual data, and the existing research just only focuses on the impacts of exogenous factors on credit risk，hence both of these two shortcomings should be overcome. From the viewpoint of endogenous factors, such as agency problems, we creatively embed the continuous-time contracting model into the structural credit risk models to discuss how endogenous factors affect the firm's credit risk indirectly by using the theories and methods of corporate finance, optimal contracting and credit risk. We shall use the methods of differential equations, martingale, and stochastic analysis and develop the continuous-time contract theory, thus we could propose an analytical framework to quantitatively study the channels of potential endogenous factors affecting the credit risk when the risky asset values including firm values follow Ito processes or jump-diffusion processes. Then we would quantitatively study the joint impacts of both endogenous factors and exogenous factors on the credit risk. We shall check the theoretical results derived by our model through the empirical analysis and numerical results, thus we could essentially improve the credit risk models. Based on the above studies, we shall apply our proposed models and methods to study dynamic corporate finance and to improve the credit derivative pricing models. Throughout this research we hope that we can get the innovation results and extend the research area of credit risk, and our research would provide a new viewpoint and an exciting path to study credit risk.