The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-Wide Risk Transfer

Yingbin Xiao, Dale Gray, Cheng Lim and Michael Gapen

No 2004/121, IMF Working Papers from International Monetary Fund

Abstract: In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody's MfRisk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.

Keywords: WP; asset value; credit risk; asset volatility; bank assets; put option; short-term debt (search for similar items in EconPapers)
Pages: 43
Date: 2004-07-01
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Citations: View citations in EconPapers (38)

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