Abstract

KMV model is one of the most important credit risk evaluation models in the world. It uses B-S option pricing and Morton formula based on the market value and volatility of the company’s equity, debt maturities, risk-free interest rates and the book value of liabilities to estimate the market value of the company’s assets and the volatility of the asset value. In this paper, based on the theory of KMV model, we can derive the listed company’s default rate, and assess credit risk. And the result is reasonable.

Highlights

  • With the development of the world market economic globalization, financial globalization has swept through

  • With the post-crisis development of financial storm in 2008, credit risk is more complicated and the modern credit risk measurement model is more suitable for depicting the level of risk

  • Zeng and Wang [3] select 42 manufacturing listed companies in Shanghai and Shenzhen to study the applicability of the KMV model in our country. They think KMV can be applied to measure the credit risk of listed companies, and on the selection of the value of the default point, the original model is not applicable to our country economy. They are based on industry characteristics and the situation of the securities market in our country to modify the default point and improve the accuracy of the KMV model

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Summary

Introduction

With the development of the world market economic globalization, financial globalization has swept through. They think KMV can be applied to measure the credit risk of listed companies, and on the selection of the value of the default point, the original model is not applicable to our country economy. They are based on industry characteristics and the situation of the securities market in our country to modify the default point and improve the accuracy of the KMV model. Combining with the actual situation of China securities market, we conduct empirical study on credit risk of our listed company based on KMV model

B-S Option Pricing Model
Merton Model
KMV Model
The Assumptions of KMV Model
Computation Steps of KMV
Parameters Setting
Findings
Empirical Research
Full Text
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