Default Distances Based on the CEV-KMV Model

Wen Su

Papers from arXiv.org

Abstract: This paper presents a new method to assess default risk based on applying the CEV process to the KMV model. We find that the volatility of the firm asset value may not be a constant, so we assume the firm's asset value dynamics are given by the CEV process $\frac{dV_A}{V_A} = \mu_A dt + \delta V_A^{\beta-1}dB$ and use the equivalent volatility method to estimate parameters. Focus on the distances to default, our CEV-KMV model fits the market better when forecasting the credit risk compared to the classical KMV model. Besides, The estimation results show the $\beta>1$ for non ST companies while $\beta

Date: 2021-07, Revised 2022-05
New Economics Papers: this item is included in nep-rmg
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://arxiv.org/pdf/2107.10226 Latest version (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:arx:papers:2107.10226

Access Statistics for this paper

More papers in Papers from arXiv.org
Bibliographic data for series maintained by arXiv administrators ().