A Financial Early-warning Model Based On Distance To Default

This paper adjusts parameters of KMV model according to the whole China capital market data. Based on financial data of 2004 and ST (Special Treatment) listed company samples of 2006, we use discriminant analysis method to proposed a financial early-warning model with Distance to Default and selected financial indices, and then analyse and predict China market financial risk status. The empirical results show that the Distance to Default can significantly improve the discrimination, while the new models can make a good prediction to effectively set apart risky companies from normal ones.