Quotation Hirk, Rainer, Vana, Laura, Hornik, Kurt, Pichler, Stefan. 2019. A joint model of failures and credit ratings. Vienna Congress on Mathematical Finance (VCMF), Vienna, Österreich, 09.09-11.09.


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Abstract

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.

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Publication's profile

Status of publication Published
Affiliation WU
Type of publication Paper presented at an academic conference or symposium
Language English
Title A joint model of failures and credit ratings
Event Vienna Congress on Mathematical Finance (VCMF)
Year 2019
Date 09.09-11.09
Country Austria
Location Vienna
URL https://fam.tuwien.ac.at/events/vcmf2019/

Associations

People
Hirk, Rainer (Details)
Vana, Laura (Details)
Hornik, Kurt (Details)
Pichler, Stefan (Details)
Organization
Institute for Statistics and Mathematics IN (Details)
Research areas (ÖSTAT Classification 'Statistik Austria')
5361 Financial management (Details)
5701 Applied statistics (Details)
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