Corporate Distress Prediction Models in a Turbulent Economic and Basel Ii Environment

31 Pages Posted: 3 Nov 2008

See all articles by Edward I. Altman

Edward I. Altman

New York University (NYU) - Salomon Center; New York University (NYU) - Department of Finance

Multiple version iconThere are 2 versions of this paper

Date Written: September 2002

Abstract

This paper discusses two of the primary motivating influences on the recentdevelopment/revisions of credit scoring models, - the important implications ofBasel II s proposed capital requirements on credit assets and the enormous amountsand rates of defaults and bankruptcies in the United States in 2001-2002. Two ofthe more prominent credit scoring techniques, our Z-Score and KMV s EDF models, are reviewed. Both models are assessed with respect to default probabilities in general and in particular to the infamous Enron and WorldCom debacles in particular. In order to be effective, these and other credit risk models should be utilized by firms with a sincere credit risk culture, observant of the fact that they are best used as an additional tool, not the sole decision making criteria, in the credit and security analyst process.

Keywords: Credit Risk Models, Default Probabilities, Basel II, Z-Score, KMV

Suggested Citation

Altman, Edward I., Corporate Distress Prediction Models in a Turbulent Economic and Basel Ii Environment (September 2002). NYU Working Paper No. FIN-02-052, Available at SSRN: https://ssrn.com/abstract=1294424

Edward I. Altman (Contact Author)

New York University (NYU) - Salomon Center ( email )

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New York University (NYU) - Department of Finance ( email )

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