Systematic and Idiosyncratic Risk in Middle-Market Default Prediction: A Study of the Performance of the RiskCalc and PFM Models
by Roger M. Stein of Moody's|KMV,
Abstract: Clients of MKMV (legacy Moody 's Risk Management Services and legacy KMV) have often requested information on the relative performance of the legacy KMV Private Firm Model (PFM) and the legacy MRMS RiskCalc models. Embedded within such requests is a desire to understand better the relative importance of the various drivers that each model uses to predict default. These include equity market information on an industry and regional basis, in the case of PFM, and localized middle market financial statement data, which is used to parameterize and calibrate localized models, in the case of RiskCalc. Having successfully merged these two legacy organizations, we are now able to test these models rigorously and begin to answer some of these questions.