Multi-period corporate default prediction with stochastic covariates |
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Authors: | Darrell Duffie Leandro SaitaKe Wang |
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Institution: | Stanford University, Graduate School of Business, Stanford, CA 94305, USA |
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Abstract: | We provide maximum likelihood estimators of term structures of conditional probabilities of corporate default, incorporating the dynamics of firm-specific and macroeconomic covariates. For US Industrial firms, based on over 390,000 firm-months of data spanning 1980 to 2004, the term structure of conditional future default probabilities depends on a firm's distance to default (a volatility-adjusted measure of leverage), on the firm's trailing stock return, on trailing S&P 500 returns, and on US interest rates. The out-of-sample predictive performance of the model is an improvement over that of other available models. |
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Keywords: | C41 G33 E44 |
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