A financial market can be expressed in a network structure where the stocks resides as nodes and the links account for returns correlation. Centrality measure in the financial network structure captures firms' embeddedness and connectivity in the capital market structure. This paper investigates...

We examine the impact of the unobservable systematic risk factor on default prediction model performance. We find that including the unobservable systematic risk factor might help improve predictive accuracy, but it might not help improve rank ordering of firms by default risk. Rank ordering is...

An important research question examined in the credit risk literature focuses on the proportion of corporate yield spreads attributed to default risk. This topic is reexamined in the light of the different issues associated with the computation of transition and default probabilities obtained...

This paper investigates how the process of going bankrupt can be recognized much earlier by enterprises than by traditional forecasting models. The presented studies focus on the assessment of credit risk classes and on determination of the differences in risk class migrations between...

We present a stochastic simulation model for estimating forward-looking corporate probability of default and loss given default. We formulate the model in a discrete time frame, apply capital-budgeting techniques to define the relationships that identify the default condition, and solve the...

In this study we theoretically simulate default risk scenarios under various economic noises. We find that firms default more quickly with stronger economic shocks but simultaneously expose higher default probabilities during their deterioration, offering traders better visibility. When the...

Diffusion in a linear potential in the presence of position-dependent killing is used to mimic a default process. Different assumptions regarding transport coefficients, initial conditions, and elasticity of the killing measure lead to diverse models of bankruptcy. One “stylized fact” is...