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Keywords = KMV Moody’s

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30 pages, 1379 KiB  
Article
Default Probabilities and the Credit Spread of Mexican Companies: The Modified Merton Model
by Paula Morales-Bañuelos and Guillermo Fernández-Anaya
Mathematics 2023, 11(20), 4397; https://doi.org/10.3390/math11204397 - 23 Oct 2023
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Abstract
This study aims to identify the model that best approximates the credit spread that should be fixed on debt instruments issued by both companies listed on the Mexican Stock Market, considering the particularities of the Mexican market. Five models were analyzed: Merton’s model, [...] Read more.
This study aims to identify the model that best approximates the credit spread that should be fixed on debt instruments issued by both companies listed on the Mexican Stock Market, considering the particularities of the Mexican market. Five models were analyzed: Merton’s model, Brownian Motion Model, Power Law Brownian Motion Model, Bloomberg’s model, and the model presented in this paper, which includes the conformable derivatives, taking as a reference the change in the variable as other authors have done, and the Bloomberg corporate default risk model (DRSK) for publics firms. We 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 Mexican non-financial companies. Full article
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