In this paper we present a novel Bayesian methodology for default prob- ability estimation based on multivariate contingent claim analysis and pair copula theory. In order to compute the default probability of a firm, we use balance sheet data as a proxy of the equity value. A pair copula approach is applied to obtain the firm pricing function, and Monte Carlo simulations are then used to calculate the distribution of the default probability. The methodology will be illustrated through an application to real data
Default probability estimation: bayesian Pair Copula model / L. Dalla Valle, M.E. DE GIULI, C. Manelli, C. Tarantola - In: CLADAG 2011 / [a cura di] P. Cerchiello, C. Tarantola. - Pavia : Pavia University Press, 2011. - ISBN 9788890663901. - pp. 1-4 (( Intervento presentato al 8. convegno CLADAG tenutosi a Pavia nel 2011.
Default probability estimation: bayesian Pair Copula model
C. Tarantola
2011
Abstract
In this paper we present a novel Bayesian methodology for default prob- ability estimation based on multivariate contingent claim analysis and pair copula theory. In order to compute the default probability of a firm, we use balance sheet data as a proxy of the equity value. A pair copula approach is applied to obtain the firm pricing function, and Monte Carlo simulations are then used to calculate the distribution of the default probability. The methodology will be illustrated through an application to real data
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