Corporate Default Behavior: A Simple Stochastic Model

Details Corporate Default Behavior: A Simple Stochastic Model Corporate Default Behavior: A Simple Stochastic Model

2000-12-29

arxiv.org/abs/cond-mat/0012514v1

Physics

Condensed Matter

Soft Condensed Matter

6 pages, RevTex, 4 eps figures, submitted to Phys. Rev. E

Scientific paper

We compare observed corporate cumulative default probabilities to those calculated using a stochastic model based on an extension of the work of Black and Cox and find that corporations default as if via diffusive dynamics. The model, based on a contingent-claims analysis of corporate capital structure, is easily calibrated with readily available historical default probabilities and fits observed default data published by Standard and Poor's. Applying this model to the Standard and Poor's default data we find that the difference in default behavior between credit ratings can be explained largely by a single variable: the "distance to default" at the time the rating is given. The ability to represent observed default behavior by a single analytic expression and to differentiate credit-rating-dependent default behavior with a single variable recommends this model for a variety of risk management applications including the mapping of bank default experience to public credit ratings.

Affiliated with

Also associated with

No associations

Rating

Corporate Default Behavior: A Simple Stochastic Model does not yet have a rating. At this time, there are no reviews or comments for this scientific paper.

If you have personal experience with Corporate Default Behavior: A Simple Stochastic Model, we encourage you to share that experience with our LandOfFree.com community. Your opinion is very important and Corporate Default Behavior: A Simple Stochastic Model will most certainly appreciate the feedback.

Rate now

Comments { 0 }

Profile ID: LFWR-SCP-O-11990