Abstract
Credit risk of fixed income securities is widely concerned during bond trading and risk monitoring, which can be measured by an important economic indicator credit spreads. This paper establishes a credit spread index by GZ model based on yield-to-maturity data of corporate bonds and government bonds from inter-bank bond market in China. In order to analyze the dynamic characteristics of credit spread index, we use GARCH model with Markov-switching process to fit the volatility of credit spread index data and estimate the unknown parameters by MCMC algorithm. The results show that the credit spread index can well reflect the trends and volatilities of the corporate bond credit spreads.
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