The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-Wide Risk Transfer

44 Pages Posted: 15 Feb 2006

See all articles by Michael Gapen

Michael Gapen

International Monetary Fund (IMF) - International Capital Markets Department

Cheng Hoon Lim

International Monetary Fund (IMF)

Yingbin Xiao

International Monetary Fund (IMF)

Date Written: July 2004

Abstract

In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody`s M/Risk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.

Keywords: Contingent claims approach, Corporate sector vulnerability, Credit risk

JEL Classification: G13, G32, G34

Suggested Citation

Gapen, Michael and Lim, Cheng Hoon and Xiao, Yingbin, The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-Wide Risk Transfer (July 2004). IMF Working Paper, Vol. , pp. 1-44, 2004. Available at SSRN: https://ssrn.com/abstract=878945

Michael Gapen (Contact Author)

International Monetary Fund (IMF) - International Capital Markets Department ( email )

700 19th Street NW
Washington, DC 20431
United States

Cheng Hoon Lim

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

Yingbin Xiao

International Monetary Fund (IMF) ( email )

700 19th Street, N.W.
Washington, DC 20431
United States

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