Post by Sapphire Capital on Jan 22, 2009 22:04:47 GMT 4
Credit Risk Modeling with Misreporting and Incomplete Information
Agostino Capponi
California Institute of Technology, Division of Engineering and Applied Sciences
Jaksa Cvitanic
California Institute of Technology - Division of the Humanities and Social Sciences
International Journal of Theoretical and Applied Finance, Vol. 12, 2009
Abstract:
We propose a structural model for the valuation of defaultable securities of a firm which models the effect of deliberate misreporting done by insiders in the firm and unobserved by others. We derive exact formulas for equity and bond prices and approximate expressions for the conditional default probability, recovery rate, and credit spread under the proposed credit risk framework. We propose a novel estimation approach to structural model estimation which accounts for noisy observed asset values. We apply the proposed method to calibrate a simple version of our model to the case of Parmalat and show that the model is able to recover a certain amount of misreporting during the years of accounting irregularities
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1318133_code1178784.pdf?abstractid=1318133&mirid=1
Agostino Capponi
California Institute of Technology, Division of Engineering and Applied Sciences
Jaksa Cvitanic
California Institute of Technology - Division of the Humanities and Social Sciences
International Journal of Theoretical and Applied Finance, Vol. 12, 2009
Abstract:
We propose a structural model for the valuation of defaultable securities of a firm which models the effect of deliberate misreporting done by insiders in the firm and unobserved by others. We derive exact formulas for equity and bond prices and approximate expressions for the conditional default probability, recovery rate, and credit spread under the proposed credit risk framework. We propose a novel estimation approach to structural model estimation which accounts for noisy observed asset values. We apply the proposed method to calibrate a simple version of our model to the case of Parmalat and show that the model is able to recover a certain amount of misreporting during the years of accounting irregularities
papers.ssrn.com/sol3/Delivery.cfm/SSRN_ID1318133_code1178784.pdf?abstractid=1318133&mirid=1