Predicting Default Risk Using Merton’s Model – a Case Study in Chinese Stock

Predicting Default Risk Using Merton’s Model – a Case Study in Chinese Stock

This case study presents a simple spreadsheet-based version of Merton’s credit risk model (i.e., normally as KMV model) to predict default risk using a Chinese utility stock data from 2008 to 2009. Due to the limitation of data availability in developing country such as China, the option-based modeling approach is to be the most straightforward approach to evaluate the default risk of public company.   

Key Word: Merton’s Model, Credit Risk, Probability of Default