Developing an Understanding of Credit-Risk Processes in Selected UK Sectors

  • Ann Puri
  • Harry Thapar
Part of the Centre for the Study of Emerging Markets Series book series (CSEM)

Abstract

Over the years, the structural form model used by Moody’s KMV Company has proved popular in the financial services sector. The commercially available model has provided a meaningful approach to reconcile credit ratings, with a market-based credit measure containing information about probability of default. Structural form models have several advantages; strong theoretical underpinnings based on a contingent claims approach. These approaches utilize stockmarket data that inherently contain forward-looking estimates about company earnings and investor risk expectations. However, the structural form method requires proprietary information and access to large historic data-sets about the company, industry and the market. These may not be readily available to a corporate financial risk manager. The manager may be focused on his company and his immediate industry, and may not have the detailed information required about static pools or the detailed knowledge about current or historic defaults in the wider market.

Keywords

Migration Amid Volatility 

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References

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Copyright information

© Ann Puri and Harry Thapar 2005

Authors and Affiliations

  • Ann Puri
  • Harry Thapar

There are no affiliations available

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