Publicação
Structural credit risk models: analysis of listed companies in Portugal
| Resumo: | Under the trend of financial globalization and considering the significant problems experienced by companies and banks during the Global Financial Crisis, the interest in credit risk measurement and management has increased substantially during the last decade. This study empirically investigates the structural credit risk approach, initiated with the seminal studies of Black and Scholes (1973) and Merton (1974), which regard corporate securities as contingent claims on a firm’s underlying assets. Throughout this study, we analyse and implement three structural credit risk models – the original Merton model (1974) and two commercial extensions of this model, the KMV model and the CreditGrades model – in order to evaluate the default probabilities of 8 listed Portuguese companies – EDP, Galp, Jerónimo Martins, Sonae, Nos, Cofina, Media Capital and Teixeira Duarte – during the years 2013 to 2017. The obtained results suggest that the annual default probabilities determined by the three structural credit risk models are considerably different, taking into consideration the several refinements made by the KMV and CreditGrades models to the original Merton model. These two commercial extensions attempt to produce a more realistic output, that better reflects real-world default dynamics. In fact, the discrepancy of results produced by the 3 structural models intensifies, as the default probability determined by the structural approach, for a given company, also increases. Moreover, among the 3 structural credit risk models considered in this study, CreditGrades is considered the most reliable model as well as the one that displays the highest default probabilities, followed by the KMV model. |
|---|---|
| Autores principais: | Santos, Inês Pereira |
| Assunto: | Credit risk Default probability Structural models Portuguese listed companies Gestão do risco Risco de crédito Modelos estruturais Empresa Portugal |
| Ano: | 2018 |
| País: | Portugal |
| Tipo de documento: | dissertação de mestrado |
| Tipo de acesso: | acesso aberto |
| Instituição associada: | ISCTE |
| Idioma: | inglês |
| Origem: | Repositório ISCTE |
| Resumo: | Under the trend of financial globalization and considering the significant problems experienced by companies and banks during the Global Financial Crisis, the interest in credit risk measurement and management has increased substantially during the last decade. This study empirically investigates the structural credit risk approach, initiated with the seminal studies of Black and Scholes (1973) and Merton (1974), which regard corporate securities as contingent claims on a firm’s underlying assets. Throughout this study, we analyse and implement three structural credit risk models – the original Merton model (1974) and two commercial extensions of this model, the KMV model and the CreditGrades model – in order to evaluate the default probabilities of 8 listed Portuguese companies – EDP, Galp, Jerónimo Martins, Sonae, Nos, Cofina, Media Capital and Teixeira Duarte – during the years 2013 to 2017. The obtained results suggest that the annual default probabilities determined by the three structural credit risk models are considerably different, taking into consideration the several refinements made by the KMV and CreditGrades models to the original Merton model. These two commercial extensions attempt to produce a more realistic output, that better reflects real-world default dynamics. In fact, the discrepancy of results produced by the 3 structural models intensifies, as the default probability determined by the structural approach, for a given company, also increases. Moreover, among the 3 structural credit risk models considered in this study, CreditGrades is considered the most reliable model as well as the one that displays the highest default probabilities, followed by the KMV model. |
|---|