Credit Analysis, Bond Rating Forecasting, and Default Probability Estimation

Cheng Few Lee

Chapter 78 in Handbook of Financial Econometrics, Mathematics, Statistics, and Machine Learning:(In 4 Volumes), 2020, pp 2635-2671 from World Scientific Publishing Co. Pte. Ltd.

Abstract: In this chapter, we will discuss how to use discriminant analysis to do credit analysis and calculate financial z-score, then we will use both discriminant analysis and factor analysis to forecast bond rating by using financial ratio information. In addition, we will discuss Ohlson’s model and the KMV–Merton model for default probability estimation. Finally, we will cite some empirical results about default probability estimation and compare the results of two different probability estimation models.

Keywords: Financial Econometrics; Financial Mathematics; Financial Statistics; Financial Technology; Machine Learning; Covariance Regression; Cluster Effect; Option Bound; Dynamic Capital Budgeting; Big Data (search for similar items in EconPapers)
JEL-codes: C01 C1 G32 (search for similar items in EconPapers)
Date: 2020
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