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Pricing corporate bonds and constructing credit curves in a developing country: The case of the Taiwan bond fund crisis

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  • Lee, Shyan Yuan
  • Chiou, Wan-Jiun Paul
  • Chung, Yi-Fang

Abstract

Supervising the bond market in developing countries is challenging due to the lack of vehicles and structures that exist in rich economies. The investors may not cognize the risks in fixed-incomes and their impacts, particularly the default risk. Our study first documents the background and causes of the bond fund crisis in Taiwan in 2004 and further evaluates the effectiveness of the regulator's policies that responded the crisis. Using the data during 2006:01–2013:12, the findings that the quoted term structure of yield to maturities provides accurate corporate bond pricing confirm the feasibility of the new regulations. However, some observations show that volatile forward rates cause negative spreads and implausible survival probability curves. We discuss the findings and provide suggestions for further research.

Suggested Citation

  • Lee, Shyan Yuan & Chiou, Wan-Jiun Paul & Chung, Yi-Fang, 2017. "Pricing corporate bonds and constructing credit curves in a developing country: The case of the Taiwan bond fund crisis," International Review of Economics & Finance, Elsevier, vol. 50(C), pages 261-274.
    • Handle: RePEc:eee:reveco:v:50:y:2017:i:c:p:261-274
    DOI: 10.1016/j.iref.2017.04.004
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    Cited by:

    1. Huang, Guan-Ying & Huang, Henry H. & Lee, Chun I, 2019. "Is CEO pay disparity relevant to seasoned bondholders?," International Review of Economics & Finance, Elsevier, vol. 64(C), pages 271-289.

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    More about this item

    Keywords

    Emerging bond market; Credit curve; Spot rate curve; Forward rate curve; Survival probability curve;
    All these keywords.

    JEL classification:

    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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