The paper develops a new probabilistic approach to the problem of optimization of a firm's capital structure. The main idea of the approach is straightforward. As a possible firm's bankruptcy is the principal factor restricting the amount of borrowed capital, we assess probabilities of a...

The paper describes model of a new type for valuation of risky bonds and loans that we call Bayesian Multi-Period (BMP) model. BMP is neither structural model nor reduced form and not a Merton-type model at all. BMP proceeds from concept of a risky bond (loan) value as Net Present Value (NPV) of...

This study investigates the multi-period prediction of firm bankruptcy as a multi-alternative problem of Statistical Decision Theory. This approach enables a simultaneous assessment to be made of the prediction of bankruptcy and the time horizon at which the bankruptcy could occur. To illustrate...

We consider the problem of predicting a firm's bankruptcy with a simultaneous assessment of the time interval within which the bankruptcy must occur. We carry out anew a comparative statistical analysis of various financial indices and identify four relatively independent factors, which have...

The paper assesses validity of credit loss distributions of client portfolios calculated by means of the Basel II model. The assessment method consists in parallel calculations the same distributions by means of exact probabilistic formulae. We found that Basel II model ensures correct...

The New Basel Capital Accord (Basel II) developed by the Basel Committee on Banking Supervision establishes new procedures for assessing a credit risk and capital adequacy requirements. For corporate client Basel II model suggests that a bank and its supervisor determine four parameters and...