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Bankruptcy Prediction for Chilean Companies

  • Felipe Zurita L.

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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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. Tudela, Merxe & Garry Young, 2003. "A Merton Model Approach to Assessing the Default Risk of UK Public Companies," Royal Economic Society Annual Conference 2003 207, Royal Economic Society.
  2. Hsiao, C. & Pesaran, M.H., 2004. "‘Random Coefficient Panel Data Models’," Cambridge Working Papers in Economics 0434, Faculty of Economics, University of Cambridge.
  3. Felipe Zurita, 2008. "La Predicción de la Insolvencia de Empresas Chilenas," Documentos de Trabajo 336, Instituto de Economia. Pontificia Universidad Católica de Chile..
  4. 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 449-70, May.
  5. Ke Wang & Darrell Duffie, 2004. "Multi-Period Corporate Failure Prediction With Stochastic Covariates," Econometric Society 2004 Far Eastern Meetings 747, Econometric Society.
  6. Duffie, Darrell & Saita, Leandro & Wang, Ke, 2007. "Multi-period corporate default prediction with stochastic covariates," Journal of Financial Economics, Elsevier, vol. 83(3), pages 635-665, March.
  7. 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.
  8. 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.
  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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