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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Main Authors: Leong, Wai Fun., Loh, Shueh Yi., Toh, Elaine Yi Lian.
Other Authors: Leon Chuen Hwa
Format: Final Year Project
Language:English
Published: 2009
Subjects:
Online Access:http://hdl.handle.net/10356/15066
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Institution: Nanyang Technological University
Language: English
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spelling 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
institution Nanyang Technological University
building NTU Library
continent Asia
country Singapore
Singapore
content_provider NTU Library
collection DR-NTU
language English
topic DRNTU::Business::Finance::Risk management
spellingShingle 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.
description 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
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