Multiperiod Corporate Default Prediction – A Forward Intensity Approach

Abstract

multiperiod corporate default prediction – a forward intensity approach jin-chuan duana jie sunb tao wangc arisk management institute, national university of singapore bocbc bank c department of finance, national university of singapore (august 2011) duan, sun and wang (nus) multiperiod corporate default prediction dsw(8/2011) 1 / 26 outline introduction 2 a forward intensity approach to multiperiod default prediction model setup estimating the forward intensity model 3 data and covariates data covariates 4 empirical results parameter estimates aggregate number of defaults prediction accuracy case study: lehman brothers comparison with duffie, et al (2007) 5 conclusion duan, sun and wang (nus) multiperiod corporate default prediction dsw(8/2011) 2 / 26 research question introduction default/bankrutpcy prediction over different future periods term structures of default probabilities short-term vs. long-term a forward intensity approach reduced form model duan, sun and wang (nus) multiperiod corporate default prediction dsw(8/2011) 3 / 26 literature review introduction discriminant analysis beaver (1966, 1968), altman (1968), etc. model output: credit scores binary response models: logit/probit regressions ohlson (1980), zmijewski (1984), etc. model output: default probability in the next one period campbell, et al (2008): logit models for different periods ahead duan, sun and wang (nus) multiperiod corporate default prediction dsw(8/2011) 4 / 26 literature review (cont’d) …

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