A joint model of failures and credit ratings

Beschreibung

We propose a novel framework for credit risk modeling, where default or failure information together with rating or expert information are jointly incorporated in the model. These sources of information are modeled as response variables in a multivariate ordinal regression model estimated by a composite likelihood procedure. The proposed framework provides probabilities of default conditional on the rating information and is able to account for missing failure and credit rating information. In our empirical analysis, we apply the proposed framework to a data set of US firms over the period from 1985 to 2014. Different sets of financial ratios constructed from financial statements and market information are selected as bankruptcy predictors in line with prominent literature in failure prediction modeling. We find that the joint model of failures and credit ratings outperforms state-of-the-art failure prediction models and shadow rating approaches in terms of prediction accuracy and discriminatory power.

Zeitraum	9 Sept. 2019 → 11 Sept. 2019
Ereignistitel	Vienna Congress on Mathematical Finance (VCMF)
Veranstaltungstyp	Keine Angaben
Bekanntheitsgrad	National