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

DefaultRisk.com the web's biggest credit risk modeling resource.

Submit Your Paper

Post Your Résumé

For Recruiters

Today's Featured Book

Applied Quantitative Finance
by Wolfgang K. Härdle (Editor), Nikolaus Hautsch (Editor), Ludger Overbeck (Editor), Springer, September 1, 2008, Hardcover, 448 pages

Training Discounted for DefaultRisk.com visitors only:

The Mathematics of Credit Derivatives: The Essential Credit Modelling and Pricing Companion
by Philipp J. Schönbucher,
WBS Training, August 2003, DVD / Interactive CD-ROM

Sponsor:
Shop at Amazon.com and support DefaultRisk.com

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

by Michael T. Gapen of the International Monetary Fund,
Dale F. Gray of Macro Financial Risk Corporation & Consultant to the Macro Financial Risk Project at Moody's Investors Service,
Cheng Hoon Lim of the International Monetary Fund, and
Yingbin Xiao of the International Monetary Fund

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 MfRisk 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.

JEL Classification: G13, G32, G34.

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

Books Referenced in this Paper: (what is this?)