Revisiting Credit Scoring Models in a Basel 2 Environment

37 Pages Posted: 11 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 3 versions of this paper

Date Written: May 2002

Abstract

This paper discusses two of the primary motivating influences on the recent development/revisions of credit scoring models, i.e., the important implications of Basel 2 s proposed capital requirements on credit assets and the enormous amounts and rates of defaults and bankruptcies in the US in 2001-2002. Two of the more prominent credit scoring techniques, Z-Score and KMV s EDF models, are reviewed. Finally, both models are assessed with respect to default probabilities in general and in particular to the infamous Enron debacle. In order to be effective, these and other credit risk models should be utilized by firms with a sincere credit risk culture.

Keywords: Credit Risk Models, Default Probabilities, Basel 2, Z-Score, KMV

Suggested Citation

Altman, Edward I., Revisiting Credit Scoring Models in a Basel 2 Environment (May 2002). NYU Working Paper No. S-FI-02-11, Available at SSRN: https://ssrn.com/abstract=1298829

Edward I. Altman (Contact Author)

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

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

Stern School of Business
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