A Merton-model approach to assessing the default risk of UK public companies

Merxe Tudela and Garry Young

Bank of England working papers from Bank of England

Abstract: In this paper it is shown how a Merton-model approach can be used to develop measures of the probability of failure of individual quoted UK companies. Probability estimates are then constructed for a group of failed companies and their properties as leading indicators of failure assessed. Probability estimates of failure for a control group of surviving companies are also constructed. These are used in probit regressions to evaluate the information content of the Merton-based estimates relative to information available in company accounts and in assessing Type I and Type II errors. Power curves and accuracy ratios are also examined. It is shown that there is much useful information in the Merton-style estimates.

Date: 2003-06
New Economics Papers: this item is included in nep-eec, nep-fin and nep-rmg
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Citations: View citations in EconPapers (31)

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Related works:
Journal Article: A MERTON-MODEL APPROACH TO ASSESSING THE DEFAULT RISK OF UK PUBLIC COMPANIES (2005)
Working Paper: A Merton Model Approach to Assessing the Default Risk of UK Public Companies (2003)
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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:194

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