Record Details

An Empirical Analysis on Credit Risk Models and its Application

Journal of Economic & Financial Studies

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Field Value
 
Title An Empirical Analysis on Credit Risk Models and its Application
 
Creator Kim, Joocheol
Kim, Eunhwan
 
Subject Economics; Finance
Collateral management; Expected default frequency; KMV.
C53; G17; G20.
 
Description This study intends to focus on introducing credit default risk with widely used credit risk models in an effort to empirically test whether the models hold their validity, apply to financial institutions which usually are highly levered with various types of debts, and finally reinterpret the results in computing adequate collateral level in the over-the-counter derivatives market. By calculating the distance-to-default values using historical market data for South Korean banks and brokerage firms as suggested in Merton model and KMV’s EDF model, we find that the performance of the introduced models well reflect the credit quality of the sampled financial institutions. Moreover, we suggest that in addition to the given credit ratings of different financial institutions, their distance-to-default values can be utilized in determining the sufficient level of credit support. Our suggested “smoothened” collateral level allows both contractual parties to minimize their costs caused from provision of collateral without undertaking additional credit risk and achieve efficient collateral management.
 
Publisher LAR Center Press
 
Contributor —
 
Date 2014-08-20
 
Type info:eu-repo/semantics/article
info:eu-repo/semantics/publishedVersion
Peer-reviewed Article
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Format application/pdf
 
Identifier http://journalofeconomics.org/index.php/site/article/view/78
10.18533/jefs.v2i03.78
 
Source Journal of Economic & Financial Studies; Vol 2, No 04 (2014): August; 14-27
2379-9471
2379-9463
 
Language eng
 
Relation http://journalofeconomics.org/index.php/site/article/view/78/235
 
Coverage —
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Rights Copyright (c) 2014 Joocheol Kim, Eunhwan Kim
http://creativecommons.org/licenses/by/4.0