The Pricing Model of Performance Bond in Taiwan Construction Industry
|關鍵字:||營造業;工程履約保證;保證費率;信用交換;定價模型;construction industry;construction performance bond;premium;credit swap;pricing model|
According to current circumstance of Taiwan construction industry, contractors are required to purchase construction performance bond before signing a contract with their clients. Most of the contractors purchase the letter of credit or promissory note issued by banks as the construction performance bond. The qualification of construction performance bond belongs to underwriting affairs of banks. However, most banks adopt qualitative conditions for qualification of construction performance bond. The contractor will start to pay premium which is a single premium to banks after purchasing construction performance bond. However, this single premium can’t reflect the credit risk of different contractors. The study of this thesis has adopted option theory to assess the credit risk as a short-term premium of construction performance bond for construction companies. According to the analysis result the premium of healthy companies is lower than existing single premium, but the premium of default companies is higher than existing single premium. The study of this thesis validates that this existing single premium is unreasonable. Afterwards, this thesis utilizes credit swap theory to construct a quantitative pricing model of performance bond. Furthermore, from Monte Carlo simulation, we can see the fact that the premium will be lower with higher collateral fraction, interest rate, as well as collateral recovery ratio. As a result the premium is direct proportional to the probability of default. The study of this thesis provides an arbitrage-free pricing model to evaluate fair premium for long-term construction performance bond.
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