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A MERTON-MODEL APPROACH TO ASSESSING THE DEFAULT RISK OF UK PUBLIC COMPANIES.

Authors :
TUDELA, M.
YOUNG, G.
Source :
International Journal of Theoretical & Applied Finance; Sep2005, Vol. 8 Issue 6, p737-761, 25p
Publication Year :
2005

Abstract

This paper shows 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. We also look at power curves and accuracy ratios. The paper shows that there is much useful information in the Merton-style estimates. [ABSTRACT FROM AUTHOR]

Details

Language :
English
ISSN :
02190249
Volume :
8
Issue :
6
Database :
Complementary Index
Journal :
International Journal of Theoretical & Applied Finance
Publication Type :
Academic Journal
Accession number :
18140713
Full Text :
https://doi.org/10.1142/S0219024905003256