A Flow-based Corporate Credit Model
Date Issued
2009
Date
2009
Author(s)
Chen, Tsung-Kang
Abstract
This study develops a flow-based corporate credit model that is able to generate concurrently and endogenously a firm’s multi-period probabilities of liquidity crunch and expected liquidity shortfalls. Based upon a state-dependent internal liquidity model, it is able to incorporate both systematic and idiosyncratic shocks into corporate internal liquidity dynamics. It is different from structural form credit models in that it considers a flow-based insolvency rather than a stock-based one, and has a potential to capture short-term credit information. Additionally, it is different from both reduced form and traditional accounting-based bankruptcy models in that it is able to provide multi-period expected liquidity shortfalls endogenously.
Subjects
Internal Liquidity
Liquidity Crunch
Flow-based
Insolvency
Credit Model
Type
thesis
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