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An Application Of KMV Model To Credit Risk Evaluation Of Listed Company

Posted on:2006-03-13Degree:MasterType:Thesis
Country:ChinaCandidate:Z S YangFull Text:PDF
GTID:2156360152970234Subject:Finance
Abstract/Summary:PDF Full Text Request
Since Expected Default Frequency model (KMV) includes not only financial information but also market price information, it can reflect credit quality of listed company completely, and it is suitable for evaluating the credit risk of listed company especially. However, we should consider that the model's ability maybe weakened when it is used to measure credit risk of listed company in Chinese market in which the stock price is different between the circulation and the non-circulation and default point is unspecified.In this paper, the KMV model with adjusted methods of assessing equity value and default point is reconstructed by taking into consideration the particularity of company's equity structures and market circumstance of China stock market. Then, we use KMV model to evaluate the credit risk of ST (Special Treatment) and Non-ST companies in order to test its ability to recognize the credit risk. Results indicate that parameters-adjusted KMV model can discriminate individually the credit risk of listed companies two years prior to ST, and recognize on the whole the trend of credit risk of them four years prior to ST. Furthermore, the ability is the strongest when the default is equal to the current liabilities. This conclusion is also confirmed by pilot test that KMV model can recognize the changes of credit quality of Lantian stock company (600709, SH).This article also finds that the significant correlations existed between TDP (theoretical default probability) and Z-value, which derived from KMV and Z-value model using to evaluate credit risk. Then we use the two models to rate the sample companies. Comparatively analyzing the rating results, we can draw the conclusions: the credit qualities of listed companies evaluated by Z-value model is better than by KMV model; the ratings of the listed companies ranked by the two models show a great consistency for the middle ranked companies, but the less consistency for the two extremes.Therefore, commercial banks can decide which listed company money should be loaned and at which interest rate. Investors also can select the portfolios according to the credit risk valuation, can reduce the credit risk, protect the fund and maximize profit.
Keywords/Search Tags:Credit risk, Listed Company, KMV model, Credit evaluating, Credit rating
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