Assessing default risk of Israeli companies using a structural model

Ana Sasi-Brodesky ()
Additional contact information
Ana Sasi-Brodesky: Bank of Israel

No 2011.13, Bank of Israel Working Papers from Bank of Israel

Abstract: The aim of this study is to assess the default probabilities of public companies and to explore the extent to which these probabilities explain bond prices in the market. These questions are examined under the framework that was proposed by Merton to price corporate debt, applied on a large number of public companies listed on the Tel Aviv Stock Exchange in the period 2005-2010. The data is cross-checked with a list of companies that underwent debt repayment difficulties during that period, which includes the 2008 financial crisis. The results show that the model is able to identify problematic firms some time in advance, though with significant errors in identification. The results also show that default along with the introduction of bankruptcy cost assumptions can contribute considerably to the explanatory power of the model.

Pages: 45 pages
Date: 2011-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://boiwebrepec.azurefd.net/RePEc/boi/wpaper/WP_2011.13.pdf First version, 2011 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:boi:wpaper:2011.13

Access Statistics for this paper

More papers in Bank of Israel Working Papers from Bank of Israel Contact information at EDIRC.
Bibliographic data for series maintained by Yossi Yakhin ().