Geurdes, Han / J.F.
(2011):
*Macro-economy in models for default probability.*

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## Abstract

We inspect the question how to adapt to macro-economical variables those probability of default (PD) estimates where Merton's model assumptions cannot be used. The need for this is to obtain trustworthy estimates of PD from a given economical situation. The structure of a known market-credit risk model is adapted. The key concept in this adaptation is the assumption of a different probabilistic situation for a firm before and at (first) default. If a corporate firm defaults we use a different probabilistic relation between macro-economical and market risk than in a firm's normal not default operation. We found a remarkable resemblance between relativity of physical space-time and the economical framework of variables. This means a solution of the calibration problem without using a Gaussian distribution estimates of the default probability.

Item Type: | MPRA Paper |
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Original Title: | Macro-economy in models for default probability. |

English Title: | Macro-economy in models for default probability. |

Language: | English |

Keywords: | English |

Subjects: | C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C65 - Miscellaneous Mathematical Tools G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy ; Financial Risk and Risk Management ; Capital and Ownership Structure ; Value of Firms ; Goodwill C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics C - Mathematical and Quantitative Methods > C6 - Mathematical Methods ; Programming Models ; Mathematical and Simulation Modeling > C60 - General |

Item ID: | 32666 |

Depositing User: | Han / J. F. Geurdes |

Date Deposited: | 11 Aug 2011 11:11 |

Last Modified: | 30 Sep 2019 17:20 |

References: | [1] X. An, Macroeconomic conditions, systematic risk factors, and time series dynamics of commercial mortgage credit risk, Preprint (2007) University Southern California, USA. [2] M. Hillebrand, Modeling and estimating loss given default, Preprint(2006) University Munchen, Germany. [3] P.A. Samuelson, Foundations of Economic Analysis, (1975), p 548-561 Harvard University Press Camb. Mass., USA. [4] A. Kreinin, A. Nagi, Calibration of the default probability model, European Journal of Operational Research (2006), doi: 10.1016/j.eor.2004.11.029. [5] A.D. Polyani, Linear Wave Equation (2004), http://eqworld.ipmnet.ru/en/solutions/lpde/lpde201.pdf |

URI: | https://mpra.ub.uni-muenchen.de/id/eprint/32666 |