Forecasting Probability of default of Corporations with the Merton model: Using Capital Asset Pricing Model with Time Varying Beta

Message:
Article Type:
Research/Original Article (دارای رتبه معتبر)
Abstract:

The purpose of this article is to predict probability of default of 60 corporations with structural Merton model. we used market data of 60 corporations from 2018/08/01 to 2019/09/01 witch are listed in Tehran Stock Exchange For predicting probability of default . to reach this goal we estimated assets value of corporations, volatility of assets and drift rate. We used Capital asset pricing method to estimate expected assets return. Then We used simple regression method and multivariate GARCH (MGARCH) to estimate Beta of corporations. in the end we compute d likelihood function of the average predicted default for each industry and compared the results with actual default rate of that industry in the next year after predicted date. Regarding obtained results of likelihood function probability of default prediction with multivariate GARCH (MGARCH) approach outperform the simple regression model, therefore we recommend using the MGARCH approach for its better prediction performance.

Language:
Persian
Published:
Financial Engineering and Protfolio Management, Volume:13 Issue: 52, 2022
Pages:
20 to 36
https://www.magiran.com/p2505844  
سامانه نویسندگان
  • Sabeti، Mehdi
    Author (1)
    Sabeti, Mehdi
    .Ph.D finance-financial management-management department, Central Tehran Branch, Islamic Azad University, تهران, Iran
  • Falah Shams، Mir Feiz
    Author (3)
    Falah Shams, Mir Feiz
    Associate Professor Finance , Financial Group, Central Tehran Branch, Islamic Azad University, تهران, Iran
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