Article
Version 1
Preserved in Portico This version is not peer-reviewed
Default Probabilities and the Credit Spread, Modified Merton model, Mexican Case
Version 1
: Received: 21 August 2023 / Approved: 22 August 2023 / Online: 23 August 2023 (07:32:25 CEST)
A peer-reviewed article of this Preprint also exists.
Morales-Bañuelos, P.; Fernández-Anaya, G. Default Probabilities and the Credit Spread of Mexican Companies: The Modified Merton Model. Mathematics 2023, 11, 4397. Morales-Bañuelos, P.; Fernández-Anaya, G. Default Probabilities and the Credit Spread of Mexican Companies: The Modified Merton Model. Mathematics 2023, 11, 4397.
Abstract
This study aims to identify the model that best approximates the credit spread that should be fixed on debt instruments issued by both public and private companies, considering the particularities of the Mexican market. Five models were analyzed: Merton's [1], those proposed by Denzler et al., the one presented in this paper, which includes the conformable derivatives, taking as a reference the change of variable made by Morales-Bañuelos et al., and the Corporate Default Risk Model (DRSK) for Publics Firms of Bloomberg [4].
The required financial information was obtained from the Bloomberg platform, from which the probabilities of default, credit spreads, and credit ratings for each company in the sample under the model (DRSK) were extracted directly. Likewise, the program developed by Moody's K.M.V. was used to obtain the EDF (Expected Default Frequencies). It was concluded that the Modified Merton model approximates to a greater extent the credit spreads that fix on a prime rate on the loans granted to the Mexican non-financial companies.
Keywords
Merton Model; Brownian Model; Power Law; Brownian Motion Model; Bloomberg Default Frequencies; Expected Default Frequencies; Conformable Derivates; K.M.V. Moody’s; Default Neutral Risk
Subject
Business, Economics and Management, Finance
Copyright: This is an open access article distributed under the Creative Commons Attribution License which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
Comments (0)
We encourage comments and feedback from a broad range of readers. See criteria for comments and our Diversity statement.
Leave a public commentSend a private comment to the author(s)
* All users must log in before leaving a comment