Empirical Study on Firm Credit Risk Prediction Based on Default Distance

Part of the Advances in Intelligent and Soft Computing book series (AINSC, volume 146)

Abstract

It’s of great significance that effective recognition and prediction of corporate default risk, improving the resistances to commercial bank’s credit risk and investors’ risk. By KMV model the option pricing theory derived from Black-Scholes and Melton is applied to the risk loans and securities investments. Based on literature review and the reality of Chinese capital market where KMV model to be applied, this article evaluated the shares of limited sales and corrected parameters in KMV model. Then, matching 25 newly default companies in 2010 with 25 normal companies as a sample, the authors calculated the risk of default, using the data of three years before sample companies’ financial deterioration with quantitative indicators for credit risk of the default distance. The results showed that the modified KMV model can accurately distinguish in advance the credit risk difference between default companies and normal companies, leading to a better grasp on changing tendency of firm credit quality.

Keywords

Default Distance KMV model credit risk risk prediction 

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Copyright information

© Springer-Verlag GmbH Berlin Heidelberg 2012

Authors and Affiliations

  1. 1.Zhejiang University City CollegeHangzhouChina
  2. 2.School of ManagementZhejiang UniversityHangzhouChina

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