ResearchBib Share Your Research, Maximize Your Social Impacts
Sign for Notice Everyday Sign up >> Login

EXAMINING THE IMPACT OF DEBT MATURITY TIME, EXPECTED RETURN AND VOLATILITY ON PROBABILITY OF DEFAULT IN CREDIT RISK MODELLING: THE CASE OF MERTON AND MKMV MODELS

Journal: INTERNATIONAL JOURNAL OF ENGINEERING SCIENCE TECHNOLOGIES (Vol.7, No. 1)

Publication Date:

Authors : ; ;

Page : 29-42

Keywords : Default Risk; Debt Maturity Time; Volatility; Merton Model; MKMV Model; Expected Return; Distance to Default; Probability of Default;

Source : Downloadexternal Find it from : Google Scholarexternal

Abstract

In order tomodel default risk, this article examines the impact of debt maturity time, volatility, and expected asset return on probability of default (PD). The study compares the probability of default produced by the Merton and Moody's KMV (MKMV) methodologies and add modifying time, volatility, and expected return on assets to see how they affect the probabilities of default produced. It utilizes the balance sheet from Apple Inc. (AAPL) recorded from 2019 September 29 to 2022 September 29 for the current and total liabilities and asset values in order to calculate the Probability of Default. The process begins by determining the distances to default (DD) for Merton and MKMV using the balance sheet, and then use the DDs to determine the likelihood of default (PD). Results indicates that, the MKMV approach compares favorably to the Merton approach

Last modified: 2023-02-01 18:48:44