Default probability estimation via pair copula constructions

Luciana Dalla Valle, Maria Elena De Giuli, Claudia Tarantola and Claudio Manelli

European Journal of Operational Research, 2016, vol. 249, issue 1, 298-311

Abstract: In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to assess the asset value, and to compute its default probability. The asset pricing function is expressed via a pair copula construction, and it is approximated via Monte Carlo simulations. The methodology is illustrated through an application to the analysis of both operative and defaulted firms.

Keywords: Default probability; Markov chain Monte Carlo; Multivariate contingent claim; Pair copula; Vines (search for similar items in EconPapers)
Date: 2016
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Default Probability Estimation via Pair Copula Constructions (2015)
Working Paper: Default Probability Estimation via Pair Copula Constructions (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ejores:v:249:y:2016:i:1:p:298-311

DOI: 10.1016/j.ejor.2015.08.026

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