The Impact of Persistence in Volatility over the Probability of Default

Rodrigo Alfaro () and Natán Golberger

Working Papers Central Bank of Chile from Central Bank of Chile

Abstract: We evaluate the impact of persistence in volatility over the probability of default in Merton’s credit risk model. Our main conclusion is that a high degree of persistence, as it is observed in equity returns, implies a lower probability of default for those cases where firms possess a high level of leverage.

Date: 2013-06
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Persistent link: https://EconPapers.repec.org/RePEc:chb:bcchwp:689

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