2014/05/06 by Luciana Dalla Valle, Valle, Luciana Dalla, Maria Elena De Giuli +5
Economics, Econometrics and Finance · Business, Management and Accounting · #Credit Risk and Financial Regulations #Financial Distress and Bankruptcy Prediction #Financial Risk and Volatility Modeling
paper · pdf · doi:10.48550/arxiv.1405.1309
In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to assess the asset value, and to compute its default probability. The asset pricing function is expressed via a pair copula construction, and it is approximated via Monte Carlo simulations. The methodology is illustrated through an application to the analysis of both operative and defaulted firms.