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Examining the changes in Probability to Default before and during the financial crisis with an industry specific perspective

Pirhadi, Leyla LU and Lazdauskaite, Ieva LU (2010) NEKM03 20101
Department of Economics
Abstract
The economic crisis and its negative effects on different industries is a very important and extensively analyzed topic today; this paper reflects these issues and aims at exploring two specific topics – the change in default risk in different industries during the economic downturn and the extent of this change as of before and after the crisis. The industries in the research have been categorized based on their cyclicality. The effects of the financial crisis are measured by applying the KMV Merton model on real data during a pre-specified time period (2004-2009). The empirical results confirm a significant increase in the probability of default in both sets of industries during the recent economic downturn; however, this increase is... (More)
The economic crisis and its negative effects on different industries is a very important and extensively analyzed topic today; this paper reflects these issues and aims at exploring two specific topics – the change in default risk in different industries during the economic downturn and the extent of this change as of before and after the crisis. The industries in the research have been categorized based on their cyclicality. The effects of the financial crisis are measured by applying the KMV Merton model on real data during a pre-specified time period (2004-2009). The empirical results confirm a significant increase in the probability of default in both sets of industries during the recent economic downturn; however, this increase is considerably higher in cyclical sectors. We believe that the findings of this paper extend the knowledge about the recession’s negative effects on the industries specified in the research. (Less)
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author
Pirhadi, Leyla LU and Lazdauskaite, Ieva LU
supervisor
organization
course
NEKM03 20101
year
type
H1 - Master's Degree (One Year)
subject
keywords
credit risk, probability of default, KMV Merton model, economic crisis, cyclical and non-cyclical industries.
language
English
id
1620486
date added to LUP
2010-06-21 09:18:00
date last changed
2010-06-21 09:18:00
@misc{1620486,
  abstract     = {The economic crisis and its negative effects on different industries is a very important and extensively analyzed topic today; this paper reflects these issues and aims at exploring two specific topics – the change in default risk in different industries during the economic downturn and the extent of this change as of before and after the crisis. The industries in the research have been categorized based on their cyclicality. The effects of the financial crisis are measured by applying the KMV Merton model on real data during a pre-specified time period (2004-2009). The empirical results confirm a significant increase in the probability of default in both sets of industries during the recent economic downturn; however, this increase is considerably higher in cyclical sectors. We believe that the findings of this paper extend the knowledge about the recession’s negative effects on the industries specified in the research.},
  author       = {Pirhadi, Leyla and Lazdauskaite, Ieva},
  keyword      = {credit risk,probability of default,KMV Merton model,economic crisis,cyclical and non-cyclical industries.},
  language     = {eng},
  note         = {Student Paper},
  title        = {Examining the changes in Probability to Default before and during the financial crisis with an industry specific perspective},
  year         = {2010},
}