Macro-economy in models for default probability
AbstractWe inspect the question how to adapt to macro-economical variables those probability of default (PD) estimates where Merton's model assumptions cannot be used. The need for this is to obtain trustworthy estimates of PD from a given economical situation. The structure of a known market-credit risk model is adapted. The key concept in this adaptation is the assumption of a different probabilistic situation for a firm before and at (first) default. If a corporate firm defaults we use a different probabilistic relation between macro-economical and market risk than in a firm's normal not default operation. We found a remarkable resemblance between relativity of physical space-time and the economical framework of variables. This means a solution of the calibration problem without using a Gaussian distribution estimates of the default probability.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 32666.
Date of creation: 28 Jul 2011
Date of revision:
Find related papers by JEL classification:
- C65 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Miscellaneous Mathematical Tools
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- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
- C60 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - General
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