Exploiting Default Probabilities in a Structural Model with Nonconstant Barrier
26 Pages Posted: 31 Jan 2014
Date Written: July 2012
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: Suggested Citation