scholarly journals Modeling Default Probability via Structural Models of Credit Risk in Context of Emerging Markets

2018 ◽  
Author(s):  
Maria Kovacova ◽  
Boris Kollar
Keyword(s):  
Emerging Markets ◽  
Credit Risk ◽  
Structural Models ◽  
Default Probability

scholarly journals An Application of KMV Model to Forecast the Credit Risk of Corporate Customers andBank’s Expected Losses

2015 ◽  
Vol 22 (1) ◽  
pp. 62-81
Author(s):  
Canh Nguyen Thi ◽  
Khoa Pham Chi
Keyword(s):  
Credit Risk ◽  
Financial Statements ◽  
Default Probability ◽  
Merton Model ◽  
Kmv Model ◽  
Seafood Processing ◽  
Corporate Customers ◽  
Transmission And Distribution

The research aims to apply KMV-Merton model to calculate and forecast default probability (DP) among corporate customers of Vietcombank. Analyzing data from financial statements of 6,398 corporate customers in the years 2008–2012/2013, the research shows that the DP of the whole customer portfolio is 2.6%, equaling a loss of VND6,319 billion, or 3.8% of outstanding loans to the portfolio. The results also show that small-sized companies have smaller DP as compared to larger ones. Regarding industries, the lowest DP is found in road and waterway transport business, and the highest is in electricity (including production, transmission and distribution), production of other kinds of power, and seafood processing business. Industries with high DP and outstanding loans may cause the greatest damage to banks. The research concludes that large-sized companies and seafood processing enterprises cause the greatest losses to banks.

scholarly journals Application of Credit Risk Management Model in Chinese Banks

2019 ◽  
Vol 11 (1) ◽  
pp. 141
Author(s):  
Haojie Chen ◽  
Ng Sin Huei ◽  
Lew Shian Loong
Keyword(s):  
Risk Management ◽  
Credit Risk ◽  
Management Practices ◽  
Default Probability ◽  
Management Model ◽  
Credit Risk Management ◽  
Kmv Model ◽  
Black Scholes ◽  
Chinese Banks ◽  
A Company

The main objective of this paper is to perform empirical analysis and research on the KMV and Zeta models, discussing whether banks in China could adopt both models in their credit risk management practices. In order to measure credit risk, the KMV model focuses on “Expected Default Probability” (EDP) that is calculated using Black-Scholes Option Pricing Formula. On the other hand, the Zeta Model focuses on determining the probability of a company going bankrupt two years prior to the event. Previous research on risk management has shown that the primary risk the banks generally face is credit risk as an increasingly greater number of banks suffer losses because of credit issues. This paper therefore aims to add to the existing literature a strong case for the relevance of both the KMV and Zeta models to be considered in the topic of banks’ credit risk management.

CDS-based implied probability of default estimation

2020 ◽  
Vol 21 (4) ◽  
pp. 399-422
Author(s):  
Amira Abid ◽  
Fathi Abid ◽  
Bilel Kaffel
Keyword(s):  
Credit Risk ◽  
Term Structure ◽  
Transition Matrix ◽  
Risk Model ◽  
Default Probability ◽  
Probability Of Default ◽  
Content Type ◽  
Thomson Reuters ◽  
Investment Grade ◽  
Implied Default Probability

Purpose This study aims to shed more light on the relationship between probability of default, investment horizons and rating classes to make decision-making processes more efficient. Design/methodology/approach Based on credit default swaps (CDS) spreads, a methodology is implemented to determine the implied default probability and the implied rating, and then to estimate the term structure of the market-implied default probability and the transition matrix of implied rating. The term structure estimation in discrete time is conducted with the Nelson and Siegel model and in continuous time with the Vasicek model. The assessment of the transition matrix is performed using the homogeneous Markov model. Findings The results show that the CDS-based implied ratings are lower than those based on Thomson Reuters approach, which can partially be explained by the fact that the real-world probabilities are smaller than those founded on a risk-neutral framework. Moreover, investment and sub-investment grade companies exhibit different risk profiles with respect of the investment horizons. Originality/value The originality of this study consists in determining the implied rating based on CDS spreads and to detect the difference between implied market rating and the Thomson Reuters StarMine rating. The results can be used to analyze credit risk assessments and examine issues related to the Thomson Reuters StarMine credit risk model.

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