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| Author: | Kealhofer, S. |
| Title: | Quantifying Credit Risk I: Default Prediction |
| Journal: | Financial Analysts' Journal
2003 : JAN-FEB, VOL. 59:1, p. 30-44 |
| Index terms: | DEBT CREDIT RISK MEASUREMENT RISK MANAGEMENT ASSETS |
| Language: | eng |
| Abstract: | This article, the first of a two-part series, focuses on empirical tests of "the Merton model" approach for predicting default. The article begins with a description of how the KMV corporation model differs from the canonical Merton model in the academic literature. The main distinctions of the KMV model are its focus on the probability of default of the company as a whole, rather than valuation of the debt, and its use of an empirically determined default frequency distribution. The article then provides a description of the tests of the power of the KMV model versus agency debt ratings. The theoretical approach of statistical methods of default prediction as it relates to the performance of the KMV model is also discussed. |
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