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Bankruptcy Prediction for Chilean Companies

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  • Felipe Zurita L.

Abstract

This paper compares statistical and option-based models of financial instability for the group of listed Chilean companies. Statistical models have the proper fit, although the peculiar history of bankruptcies in the period of analysis, namely their concentration in the early period, questions their usefulness as a predictive tool. In models based on option theory, on the other hand, average bankruptcy probabilities appear to be highly correlated with bank risk indicators, and precedes them by up to three quarters. Overall, this first measuring effort is moderately successful, but reveals a number of paths worth exploring.

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File URL: http://www.bcentral.cl/eng/studies/economia-chilena/2008/apr/v11n1abr2008pp93-116.pdf
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Bibliographic Info

Article provided by Central Bank of Chile in its journal Economía Chilena.

Volume (Year): 11 (2008)
Issue (Month): 1 (April)
Pages: 93-116

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Handle: RePEc:chb:bcchec:v:11:y:2008:i:1:p:93-116

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  1. Philip Bunn & Victoria Redwood, 2003. "Company accounts based modelling of business failures and the implications for financial stability," Bank of England working papers 210, Bank of England.
  2. Cheng Hsiao & M. Hashem Pesaran, 2004. "Random Coefficient Panel Data Models," CESifo Working Paper Series 1233, CESifo Group Munich.
  3. Shumway, Tyler, 2001. "Forecasting Bankruptcy More Accurately: A Simple Hazard Model," The Journal of Business, University of Chicago Press, vol. 74(1), pages 101-24, January.
  4. Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  5. Darrell Duffie & Leandro Siata & Ke Wang, 2006. "Multi-Period Corporate Default Prediction With Stochastic Covariates," NBER Working Papers 11962, National Bureau of Economic Research, Inc.
  6. M. Tudela & G. Young, 2005. "A Merton-Model Approach To Assessing The Default Risk Of Uk Public Companies," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(06), pages 737-761.
  7. Ke Wang & Darrell Duffie, 2004. "Multi-Period Corporate Failure Prediction With Stochastic Covariates," Econometric Society 2004 Far Eastern Meetings 745, Econometric Society.
  8. Felipe Zurita, 2008. "La Predicción de la Insolvencia de Empresas Chilenas," Documentos de Trabajo 336, Instituto de Economia. Pontificia Universidad Católica de Chile..
  9. Black, Fischer & Scholes, Myron S, 1973. "The Pricing of Options and Corporate Liabilities," Journal of Political Economy, University of Chicago Press, vol. 81(3), pages 637-54, May-June.
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