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2012 | OriginalPaper | Chapter
Empirical Study on Firm Credit Risk Prediction Based on Default Distance
Authors : Hong Zhou, Jingyi Wang, Yilin Qiu
Published in: Emerging Computation and Information teChnologies for Education
Publisher: Springer Berlin Heidelberg
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It’s of great significance that effective recognition and prediction of corporate default risk, improving the resistances to commercial bank’s credit risk and investors’ risk. By KMV model the option pricing theory derived from Black-Scholes and Melton is applied to the risk loans and securities investments. Based on literature review and the reality of Chinese capital market where KMV model to be applied, this article evaluated the shares of limited sales and corrected parameters in KMV model. Then, matching 25 newly default companies in 2010 with 25 normal companies as a sample, the authors calculated the risk of default, using the data of three years before sample companies’ financial deterioration with quantitative indicators for credit risk of the default distance. The results showed that the modified KMV model can accurately distinguish in advance the credit risk difference between default companies and normal companies, leading to a better grasp on changing tendency of firm credit quality.