Rating Changes - Can they be predicted with the Merton model?
(2012) FEKN90 20121Department of Business Administration
- Abstract
- Purpose: The purpose of the thesis was to investigate if the Merton model had any predictive power of changes in Moody’s credit ratings and if there was a difference in the predictability between upgrades and downgrades. This was done in an effort to either support or dismiss the opinion that credit ratings are lagging.
Methodology: The distance-to-default (DD) was calculated with the Merton model. The DD’s and the credit ratings were run in logit regressions.
Theoretical perspectives: The Merton model by Robert C. Merton (1974) which is based upon the work by Black and Scholes (1973).
Empirical foundation: A sample of 100 American, non-financial public companies constituted the foundation for the study.
Conclusions: Some... (More) - Purpose: The purpose of the thesis was to investigate if the Merton model had any predictive power of changes in Moody’s credit ratings and if there was a difference in the predictability between upgrades and downgrades. This was done in an effort to either support or dismiss the opinion that credit ratings are lagging.
Methodology: The distance-to-default (DD) was calculated with the Merton model. The DD’s and the credit ratings were run in logit regressions.
Theoretical perspectives: The Merton model by Robert C. Merton (1974) which is based upon the work by Black and Scholes (1973).
Empirical foundation: A sample of 100 American, non-financial public companies constituted the foundation for the study.
Conclusions: Some evidence for that credit ratings are lagging was found. The Merton model had some predictive power of rating changes, especially for downgrades. (Less)
Please use this url to cite or link to this publication:
http://lup.lub.lu.se/student-papers/record/2540753
- author
- Rebeggiani, Simone LU and Westerlund, Marcus
- supervisor
- organization
- course
- FEKN90 20121
- year
- 2012
- type
- H1 - Master's Degree (One Year)
- subject
- keywords
- The Merton model, credit risk, credit rating, rating changes, rating prediction
- language
- English
- id
- 2540753
- date added to LUP
- 2012-06-19 11:36:03
- date last changed
- 2012-06-19 11:36:03
@misc{2540753,
abstract = {{Purpose: The purpose of the thesis was to investigate if the Merton model had any predictive power of changes in Moody’s credit ratings and if there was a difference in the predictability between upgrades and downgrades. This was done in an effort to either support or dismiss the opinion that credit ratings are lagging.
Methodology: The distance-to-default (DD) was calculated with the Merton model. The DD’s and the credit ratings were run in logit regressions.
Theoretical perspectives: The Merton model by Robert C. Merton (1974) which is based upon the work by Black and Scholes (1973).
Empirical foundation: A sample of 100 American, non-financial public companies constituted the foundation for the study.
Conclusions: Some evidence for that credit ratings are lagging was found. The Merton model had some predictive power of rating changes, especially for downgrades.}},
author = {{Rebeggiani, Simone and Westerlund, Marcus}},
language = {{eng}},
note = {{Student Paper}},
title = {{Rating Changes - Can they be predicted with the Merton model?}},
year = {{2012}},
}