Research on the Risk Measurement Algorithm of Supply Chain Order Financing Based on Insurance Actuarial

Abstract

In today’s globalized economy, all the links of supply chain are interlinked. Most of the upstream raw material manufacturers or producers in the said chain are small- and medium-sized enterprises (SMEs) that provide the basis for the efficient operation of the whole supply chain. However, SMEs in China, especially those playing a pivotal role in China’s export-oriented economy at this stage, do not have access to the corresponding financial treatment. Supply chain finance provides a new perspective to solve this contradiction. Henceforth, this paper introduces modern financial engineering risk measurement tools to measure the financial risk in supply chain finance, specifically while evaluating the single financing business. Moreover, the chief objective of this paper will be the analysis of the characteristics and connotations of order financing business model. In addition, the focus will be to analyze the risk of order financing from the perspective of banks and other financial institutions. Additionally, this paper will use the CreditRisk + model based on insurance actuarial principles to manage credit risk in order financing business based on foreign currency settlement, in conjunction with the characteristics of supply chain finance and multinational supply chain. Furthermore, a risk measurement method for the application of order financing in multinational supply chains will be provided. Ultimately, the experiments show that the solution of this paper defines and analyzes the financial risks brought by order financing business to bank financing.