A simple empirical model of equity-implied probabilities of default

Edward Altman; Neil Fargher; Egon Kalotay

doi:10.3905/jfi.2011.20.3.071

A simple empirical model of equity-implied probabilities of default

Edward Altman^*, Neil Fargher, Egon Kalotay

^*Corresponding author for this work

Research output: Contribution to journal › Article › peer-review

14 Citations (Scopus)

Abstract

Practitioners and academics have exploited the theoretical restrictions developed in Merton [1974] to predict distress based on the risk-neutral probability of default inferred from equity prices. Recent empirical studies such as Hillegeist, Keating, Cram, and Lundstedt [2004], and Bharath and Shumway [2008] have advocated the value of the approach relative to widely used alternatives.

Original language	English
Pages (from-to)	71-85
Number of pages	15
Journal	Journal of Fixed Income
Volume	20
Issue number	3
DOIs	https://doi.org/10.3905/jfi.2011.20.3.071
Publication status	Published - Dec 2011

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10.3905/jfi.2011.20.3.071

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title = "A simple empirical model of equity-implied probabilities of default",

abstract = "Practitioners and academics have exploited the theoretical restrictions developed in Merton [1974] to predict distress based on the risk-neutral probability of default inferred from equity prices. Recent empirical studies such as Hillegeist, Keating, Cram, and Lundstedt [2004], and Bharath and Shumway [2008] have advocated the value of the approach relative to widely used alternatives.",

author = "Edward Altman and Neil Fargher and Egon Kalotay",

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AB - Practitioners and academics have exploited the theoretical restrictions developed in Merton [1974] to predict distress based on the risk-neutral probability of default inferred from equity prices. Recent empirical studies such as Hillegeist, Keating, Cram, and Lundstedt [2004], and Bharath and Shumway [2008] have advocated the value of the approach relative to widely used alternatives.

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JO - Journal of Fixed Income

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A simple empirical model of equity-implied probabilities of default

Abstract

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