The Bloomberg Corporate Default Risk Model (DRSK) for Public Firms

Abstract

The DRSK public model estimates forward-looking real-world default probabilities for publicly traded firms. The model also assigns credit grades based on the estimated default probabilities. The product covers firms in all regions and sectors of operation for which the necessary data is available.

The DRSK public model was last updated in 2015. This year we are releasing an updated model which improves on the previous model's performance in a variety of ways. The new model's accuracy ratio is above 92%, adjusted pseudo R-squareds have improved, and performance is more in line with observed historical default rates. We describe the new model, analyze its performance in various ways and compare it to the previous model.

Keywords: Merton, Black-Cox, distance to default, real-world default probability, logistic regression, public firms, credit risk

JEL Classification: C55,C58,G19