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Structural models of default: lessons from firm-level data

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  • Nikola Tarashev

Abstract

Structural credit risk models account for the average level of default rates within rating categories only when calibrated on a firm by firm basis. Nevertheless, firm-specific information matters little when one is interested in forecasting the path of default rates over time. This is because economic factors common to all firms strongly influence the evolution of default predictions.

Suggested Citation

  • Nikola Tarashev, 2005. "Structural models of default: lessons from firm-level data," BIS Quarterly Review, Bank for International Settlements, September.
    • Handle: RePEc:bis:bisqtr:0509h
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    References listed on IDEAS

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    1. Leland, Hayne E & Toft, Klaus Bjerre, 1996. "Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Journal of Finance, American Finance Association, vol. 51(3), pages 987-1019, July.
    2. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    3. Anderson, Ronald W. & Sundaresan, Suresh & Tychon, Pierre, 1996. "Strategic analysis of contingent claims," European Economic Review, Elsevier, vol. 40(3-5), pages 871-881, April.
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    Cited by:

    1. Aleksandra Wójcicka-Wójtowicz, 2018. "Credit risk mangement in finance - a review of various approaches," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 28(4), pages 99-106.
    2. repec:wut:journl:v:3:y:2012:id:1043 is not listed on IDEAS
    3. Aleksandra Wójcicka, 2012. "Calibration of a credit rating scale for Polish companies," Operations Research and Decisions, Wroclaw University of Science and Technology, Faculty of Management, vol. 22(3), pages 63-73.
    4. Allen Frankel, 2006. "Prime or not so prime? An exploration of US housing finance in the new century," BIS Quarterly Review, Bank for International Settlements, March.

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    More about this item

    JEL classification:

    • C52 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Evaluation, Validation, and Selection
    • G10 - Financial Economics - - General Financial Markets - - - General (includes Measurement and Data)
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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