IDEAS home Printed from https://ideas.repec.org/a/boi/isrerv/v10y2013i2p147-185.html
   My bibliography  Save this article

Assessing Default Risk of Israeli Companies Using a Structural Model

Author

Listed:
  • Sasi-Brodesky Ana

    (Bank of Israel)

Abstract

The aim of this study is to asses the default probabilities of public companies and to explore the extent to which these probabilities explain bond prices in the market. These questions are examined under the framework that was proposed by Merton to price corporate debt, applied on a large number of public companies listed on the Tel Aviv Stock Exchange in the period 2005-2010. The data is cross-checked with a list of companies that underwent debt repayment difficulties during that period, which includes the 2008 financial crisis. The results show that the model is able to identify problematic firms some time in advance, though with significant errors in identification. The results also show that default risk can explain only a small part of the corporate bond spreads, while other market risks along with the introduction of bankruptcy cost assumptions can contribute considerably to the explanatory power of the model.

Suggested Citation

  • Sasi-Brodesky Ana, 2013. "Assessing Default Risk of Israeli Companies Using a Structural Model," Israel Economic Review, Bank of Israel, vol. 10(2), pages 147-185.
  • Handle: RePEc:boi:isrerv:v:10:y:2013:i:2:p:147-185
    as

    Download full text from publisher

    File URL: https://boiwebrepec.azurefd.net/RePEc/boi/isrerv/IsER_10_2013_2_147-185.pdf
    Download Restriction: no
    ---><---

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boi:isrerv:v:10:y:2013:i:2:p:147-185. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Yossi Yakhin (email available below). General contact details of provider: https://edirc.repec.org/data/boigvil.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.