Structural Credit Modeling and Boundary Sensitivity : Maybe One Half is not Enough!

We analyze the role played by the boundary value for the sensitivity of the creditworthiness predictions in methodologies based on Merton [1974]. We run Monte-Carlo simulations with two various samples of firms - American, European - in order to build confidence intervals for the estimator of the fractional long-term debt component parameter of the default barrier. The robustness of these confidence intervals is tested by a resampling method for an efficient determination of the a-quantile. In addition to this main task, kernel empirical distributions for the built-default probabilities are performed by using the Silvermann's method. This paper can be seen as a model risk study that emphasizes the possible errors induced by the use of a constant fractional long-term debt component part in the actual definition of the barrier offered by the KMV Corporation.

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Year of publication:	2003-04-01
Authors:	Metayer, Benoit
Institutions:	Institut für Schweizerisches Bankwesen <Zürich> ; National Centre of Competence in Research North South <Bern>
Subject:	Risikomanagement \| risk management \| Kernschätzung

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Extent:	41 p. application/pdf
Series:	Universität Zürich - Institut für Schweizerisches Bankwesen - Working Papers Working Paper ; No. 63 (2003)
Type of publication:	Book / Working Paper
Language:	English
Classification:	G13 - Contingent Pricing; Futures Pricing ; G22 - Insurance; Insurance Companies ; Corporate finance and investment policy. General ; Individual Working Papers, Preprints ; Europe. General Resources ; USA
Source:	USB Cologne (business full texts)

Persistent link: https://www.econbiz.de/10005858908