An Integrated Structural form Credit Risk Model--A Combination of Stock- and Flow-based Credit Risk Models
Date Issued
2009
Date
2009
Author(s)
Lu, Chia-Wu
Abstract
This study develops an integrated structural-form credit risk model which combines both stock-based and flow-based corporate credit information. The new model differs from traditional structural-form credit models in that it considers not only stock-based default but also flow-based insolvency. This model can generate endogenously a firm’s probabilities of default, resulting from either asset inadequacy or liquidity crunch. Numerical analyses show that the model can catch short-term default risk which is underestimated by traditional Merton-type stock-based models. An application to a bank sample shows that this model is able to improve the effectiveness for evaluating short-term default probabilities.
Subjects
Stock-based Credit Model
Flow-based Credit Model
Flow-based Insolvency
Type
thesis
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ntu-98-D93723008-1.pdf
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