Exploiting Default Probabilities in a Structural Model with Nonconstant Barrier

26 Pages Posted: 31 Jan 2014

See all articles by Arianna Agosto

Arianna Agosto

University of Bologna - Department of Statistics

Enrico Moretto

Dipartimento di Economia, Metodi Quantitativi e Strategie di Impresa - Università di Milano-Bicocca, Milano, Italia; Università di Milano-Bicocca; CNR - IMATI; University of Insubria - Department of Economics

Date Written: July 2012

Abstract

Structural models have been developed and used in financial literature to assess the probability of default of corporations. This article aims at reversing this approach, using this probability as an input and investigating if the default barrier can be considered flat, as done in similar analysis, or should more appropriately be time-varying.

Keywords: default structural models, default implied probability, nonconstant barrier options, KMV model

JEL Classification: G13, G33

Suggested Citation

Agosto, Arianna and Moretto, Enrico, Exploiting Default Probabilities in a Structural Model with Nonconstant Barrier (July 2012). Applied Financial Economics, Vol. 22, No. 8, 2012, Available at SSRN: https://ssrn.com/abstract=2387642

Arianna Agosto

University of Bologna - Department of Statistics ( email )

Bologna, 40126
Italy

Enrico Moretto (Contact Author)

Dipartimento di Economia, Metodi Quantitativi e Strategie di Impresa - Università di Milano-Bicocca, Milano, Italia ( email )

Piazza dell'Ateneo Nuovo 1
Milano, Milano 20126
Italy

HOME PAGE: http://https://www.unimib.it/enrico-moretto

Università di Milano-Bicocca ( email )

Piazza dell'Ateneo Nuovo 1
Milano, MI 20126
Italy

HOME PAGE: http://https://www.unimib.it/enrico-moretto

CNR - IMATI ( email )

via Bassini 15
Milano, 20133
Italy

University of Insubria - Department of Economics ( email )

Via Ravasi 2
Varese, 21100
Italy

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