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Modeling Default Probability via Structural Models of Credit Risk in Context of Emerging Markets

In: Financial Management from an Emerging Market Perspective

Author

Listed:
  • Maria Kovacova
  • Boris Kollar

Abstract

The chapter is focused on the structural models of credit risk introducing basic concepts of risk-neutral world, as well as models and different options for the credit risk quantification. An important part is also the introduction of structural approach for credit risk modeling. Furthermore, the chapter presents basic division of structural models and then presents mathematical derivation of individual apparatuses of models. Among tested models are Merton model, KMV model, Black-Cox model, and Credit Grades model. The practical part is focused on the application of these models under the conditions of local emerging market--Slovakia. Additionally, it pointed out the connection between default probability and credit spreads generated with the use of default mode credit risk models. The main objective is to adjust credit risk model to real market data.

Suggested Citation

  • Maria Kovacova & Boris Kollar, 2018. "Modeling Default Probability via Structural Models of Credit Risk in Context of Emerging Markets," Chapters, in: Soner Gokten & Guray Kucukkocaoglu (ed.), Financial Management from an Emerging Market Perspective, IntechOpen.
    • Handle: RePEc:ito:pchaps:121208
    DOI: 10.5772/intechopen.71021
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    More about this item

    Keywords

    credit risk; financial modeling; probability of default; credit spread; structural models;
    All these keywords.

    JEL classification:

    • C88 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Other Computer Software
    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications

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