An empirical comparison of structural and accounting-based credit risk models.
This paper looks into 3 types of credit risk models: Altman Z-Score (2002), KMV-Merton (1974) and Longstaff and Schwartz (1997). These models are analyzed and tested using a sample of listed industrial firms in the Standard & Poor’s 500. With the aim of finding the most reliable and predictiv...
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sg-ntu-dr.10356-150662023-05-19T06:24:03Z An empirical comparison of structural and accounting-based credit risk models. Leong, Wai Fun. Loh, Shueh Yi. Toh, Elaine Yi Lian. Leon Chuen Hwa Nanyang Business School DRNTU::Business::Finance::Risk management This paper looks into 3 types of credit risk models: Altman Z-Score (2002), KMV-Merton (1974) and Longstaff and Schwartz (1997). These models are analyzed and tested using a sample of listed industrial firms in the Standard & Poor’s 500. With the aim of finding the most reliable and predictive model even in times of economic turbulence, a number of tests were carried out to test the correlation of the outputs calculated from the models against their market rating obtained from major Credit Rating Agencies. The qualitative and quantitative tests carried out in this report showed that KMV-Merton model has the strongest positive correlation with the corresponding Credit Rating Agencies’ ratings. A sensitivity analysis was carried out to test effect of a change in asset volatility on both KMV-Merton and Longstaff and Schwartz models. A simple prediction test examined the models on their ability to generate EDPs which can accurately predict the financial status of the firms for the next fiscal year. BUSINESS 2009-03-20T08:34:15Z 2009-03-20T08:34:15Z 2009 2009 Final Year Project (FYP) http://hdl.handle.net/10356/15066 en Nanyang Technological University 54 p. application/pdf |
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DRNTU::Business::Finance::Risk management Leong, Wai Fun. Loh, Shueh Yi. Toh, Elaine Yi Lian. An empirical comparison of structural and accounting-based credit risk models. |
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This paper looks into 3 types of credit risk models: Altman Z-Score (2002), KMV-Merton (1974) and Longstaff and Schwartz (1997). These models are analyzed and tested using a sample of listed industrial firms in the Standard & Poor’s 500.
With the aim of finding the most reliable and predictive model even in times of economic turbulence, a number of tests were carried out to test the correlation of the outputs calculated from the models against their market rating obtained from major Credit Rating Agencies. The qualitative and quantitative tests carried out in this report showed that KMV-Merton model has the strongest positive correlation with the corresponding Credit Rating Agencies’ ratings. A sensitivity analysis was carried out to test effect of a change in asset volatility on both KMV-Merton and Longstaff and Schwartz models. A simple prediction test examined the models on their ability to generate EDPs which can accurately predict the financial status of the firms for the next fiscal year. |
author2 |
Leon Chuen Hwa |
author_facet |
Leon Chuen Hwa Leong, Wai Fun. Loh, Shueh Yi. Toh, Elaine Yi Lian. |
format |
Final Year Project |
author |
Leong, Wai Fun. Loh, Shueh Yi. Toh, Elaine Yi Lian. |
author_sort |
Leong, Wai Fun. |
title |
An empirical comparison of structural and accounting-based credit risk models. |
title_short |
An empirical comparison of structural and accounting-based credit risk models. |
title_full |
An empirical comparison of structural and accounting-based credit risk models. |
title_fullStr |
An empirical comparison of structural and accounting-based credit risk models. |
title_full_unstemmed |
An empirical comparison of structural and accounting-based credit risk models. |
title_sort |
empirical comparison of structural and accounting-based credit risk models. |
publishDate |
2009 |
url |
http://hdl.handle.net/10356/15066 |
_version_ |
1770567261430480896 |