Forecasting default with the Merton distance to default model

Review of Financial Studies

Volumn 21, Issue 3, 2008, Pages 1339-1369

  Bharath, Sreedhar T ^a,b   Shumway, Tyler ^a,b  

^a UNIVERSITY OF MICHIGAN   (United States)

^b UNIVERSITY OF MICHIGAN   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

EID: 39749084409     PISSN: 08939454     EISSN: 14657368     Source Type: Journal    
DOI: 10.1093/rfs/hhn044     Document Type: Article

References (29)

1. Basel Committee on Banking Supervision. 1999. Credit Risk Modelling: Current Practices and Applications. Available at www.bis.org.
2. Berndt, A., R. Douglas, D. Duffie, M. Ferguson, and D. Schranz. 2005. Measuring Default Risk Premia from Default Swap Rates and EDFs. Working Paper, Stanford University.
3. British Bankers' Association. 2002. BBA Credit Derivatives Report 2001/2002.
4. Campbell, J. Y., J. Hilscher, and J. Szilagyi. 2007. In Search of Distress Risk. Journal of Finance. http://www.afajof.org/afa/forthcoming/ 3185.pdf.
5. Campbell, J. Y., and G. B. Taksler. 2003. Equity Volatility and Corporate Bond Yields. Journal of Finance 58:2321-49.
6. Chava, S., and R. Jarrow. 2004. Bankruptcy Prediction with Industry Effects. Review of Finance 8:537-69.
7. Cox, D. R., and D. Oakes. 1984. Analysis of Survival Data. New York: Chapman and Hall.
8. Crosbie, P. J., and J. R. Bohn. 2003. Modeling Default Risk. http://www.ma.hw.ac.uk/∼mcneil/F79CR/ Crosbie Bohn.pdf (accessed May 2008).
9. Du, Y., and W. Suo. Assessing Credit Quality from Equity Markets: Is a Structural Approach a Better Approach? Canadian Journal of Administrative Studies (forthcoming).
10. Duffie, D., and K. J. Singleton. 2003. Credit Risk: Pricing, Measurement, and Management. Princeton, NJ: Princeton University Press.
11. Duffie, D., L. Saita, and K. Wang. 2007. Multi-Period Corporate Failure Prediction with Stochastic Covariates. Journal of Financial Economics 83:635-65.
12. Elton, E. J., M. J. Gruber, D. Agrawal, and C. Mann. 2001. Explaining the Rate Spread on Corporate Bonds. Journal of Finance 56:247-77.
13. Falkenstein, E., and A. Boral. 2001. Some Empirical Results on the Merton Model. Risk Professional. April.
14. Hillegeist, S. A., E. K. Keating, D. P. Cram, and K. G. Lundstedt. 2004. Assessing the Probability of Bankruptcy. Review of Accounting Studies 9(1):5-34.
15. Hull, J., M. Predescu, and A. White. 2004. The Relationship between Credit Default Swap Spreads, Bond Yields and Credit Rating Announcements. Journal of Banking and Finance 28:2789-2811.
16. Jones, E., S. Mason, and E. Rosenfeld. 1984. Contingent Claims Analysis of Corporate Capital Structures: an Empirical Investigation. Journal of Finance 39:611-25.
17. Kealhofer, S., and M. Kurbat. 2001. The Default Prediction Power of the Merton Approach., Relative to Debt Ratings and Accounting Variables (KMV LLC).
18. Longstaff, F. A., S. Mithal, and E. Neis. 2005. Corporate Yield Spreads: Default Risk or Liquidity? New Evidence from the Credit-Default Swap Market. Journal of Finance 60:2213-53.
19. Menard, S. 2002. Applied Logistic Regression Analysis. Thousand Oaks, CA: Sage Publications.
20. Merton, R. C. 1974. On the Pricing of Corporate Debt: The Risk Structure of Interest Rates. Journal of Finance 29:449-70.
21. Saunders, A., and L. Allen. 2002. Credit Risk Measurement: New Approaches to Value at Risk and Other Paradigms. New York: John Wiley.
22. Shumway, T. 2001. Forecasting Bankruptcy More Accurately: A Simple Hazard Model. Journal of Business 74:101-24.
23. Sobehart, J. R., and S. C. Keenan. 1999. An Introduction to Market-Based Credit Analysis. New York: Moody's Investors Services.
24. Sobehart, J. R., and S. C. Keenan. 2002. Hybrid Contingent Claims Models: a Practical Approach to Modelling Default Risk, in Michael Ong, (ed.), Credit Rating: Methodologies, Rationale, and Default Risk 125-45. New York: Risk Books.
25. Sobehart, J. R., and S. C. Keenan. 2002. The Need for Hybrid Models. Risk February, 73-7.
26. Sobehart, J. R., and R. M. Stein. 2000. Moody's Public firm Risk Model: A Hybrid Approach to Modeling Short Term Default Risk. New York: Moody's Investors Services.
27. Stein, R. M. 2000. Evidence on the Incompleteness of Merton-type Structural Models for Default Prediction. New York: Moody's Investors Services.
28. Vassalou, M., and Y. Xing. 2004. Default Risk in Equity Returns. Journal of Finance 59:831-68.
29. Warga, A. 1998. Fixed Income Data Base. Working Paper, University of Houston.