This thesis is about how to price Export Insurance Premium Using the pricing model of Credit Default Swap(CDS). For this empirical study , 21 companies are selected out of the current USA importers against which non-payment risk is covered by KEIC’s (Korea Export Insurance Corporation) Export Insurance. The CDS model put forward in 2000 by Hull & White is used in this thesis. This model providing a methodology for valuing the plain vanilla CDS is based on the assumption that there is no counterparty default risk and there is just one reference entity(single-name CDS). Because the function and structure of Export Insurance is very similar to that of CDS, it is presumed Export Insurance premium can be valued through the CDS pricing model. When it comes to pricing plain vanilla CDS, estimating the default probability and expected recovery rate is the key task. This thesis assumed the last 10-year average recovery rate of Export Insurance as the expected recovery rate. This study shows that credit rating system of KEIC is rather poor compared to that of Moody’s in that KEIC doesn’t take into account such various qualitative factors as can evaluate the probability of default. As a result, there is a substantial divergence of credit rating for a same company between KEIC and Moody’s. Another feature that this study shows is that KEIC’s premium system doesn’t seem to consider properly the degree of default risk, despite the general acceptance of the basic principle of insurance that the rule of “high risk high premium” should be reflected in premium. Finally this study also shows the sensitivities of price when recovery rate and contract maturity change.
