Do changes in distance-to-default anticipate changes in the credit rating?

Nidhi Aggarwal (), Manish Singh () and Susan Thomas
Authors registered in the RePEc Author Service: Manish Kumar Singh ()

Indira Gandhi Institute of Development Research, Mumbai Working Papers from Indira Gandhi Institute of Development Research, Mumbai, India

Abstract: Distance-to-default (DtD) from the Merton model has been used in the credit risk literature, most successfully as an input into reduced form models for forecasting default. In this paper, we suggest that the change in the DtD is informative for predicting change in the credit rating. This is directly useful for situations where forecasts of credit rating changes are required. More generally, it contributes to our knowledge about reduced form models of credit risk.

Keywords: Distance to Default; rating downgrades; rating change; forecasts; event study analysis; probit models; simulation; bootstrap; crisis analysis (search for similar items in EconPapers)
JEL-codes: C53 C58 G14 G17 G21 (search for similar items in EconPapers)
Pages: 31 pages
Date: 2012-03
New Economics Papers: this item is included in nep-ban, nep-cba and nep-for
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

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