The Estimation Of Default Probability Of Listed Companies In The Presence Of Systematic Risk

Credit risk management is playing a more and more important role in rational allocation of resources,pricing of financial products,improving market efficiency and eliminating information asymmetry.As a representative of the modern credit risk measurement model,Merton model can reflect the credit status of listed companies in time,and is widely used in credit risk assessment of listed companies in developed countries.This paper will research on the Merton model.This paper aims to study the effect of systemic risk on the default probability of listed companies.Based on the Merton model,we introduce the system risk factors and the asset correlation coefficient to derive the default probability model of listed companies which includes heterogeneous risk and systemic risk.And then analysis the important parameters sensitivity of the model.In order to accurately estimate the default probability of the company,this article then modifies the method of parameters estimation according to the characteristics of Chinese financial market.Finally,according to the formula given by the model and the method of estimating the parameters,this paper studies the default probability of all A-share companies listed on the Shanghai Stock Exchange and analyzes them.According to the research of this paper,we draw the following conclusions:First,existing an asset correlation coefficient makes the probability of default to be the highest.The larger the correlation coefficient of assets,the greater the impact of the company by the system risk.Second,the higher the system risk volatility the higher the probability of default will be.Thirdly,the default probability given by the modified Merton model is significantly higher than given by the basic Merton.The basic Merton model is not sufficient to cover the worst case while the probability of default in extreme worst case can be estimated by the modified model.Through testing,the model presented in this paper has a strong ability of risk identification and prediction.Therefore,the default probability estimation model considering the system risk can be a good measure of the default probability of listed companies in China.