Estimation of Default Probabilities: Application of the Discriminant Analysis and the Structural Approach for Companies Listed on the BVC

Oubdi Lahsen, Abdesamad Touimer

Abstract


This article aims to compare the calculated results of the structural approach (Internal Ratings-Based IRB) and the discriminant analysis (Z-score of Altman 1968), based on data from companies listed on the BVC for the period from 02 January 2014 to December 31, 2014.

The structural approach is directly linked to the economic reality of the company; the default takes place as soon as the market value of these assets falls below a certain threshold. The major constraint for this approach is the determination of the probabilities of default.

This situation is overcomed by using the Black & Scholes model (1973), based on Monte Carlo simulations. While the Z-score method is a financial analysis technique of business failure predictions, which is based on financial and economic ratios.


References


Altman. E. I., Haldeman. R. G. & Narayanan. P. (1977), “ZETATM Analysis A New Model To Identify Bankruptcy Risk Of Corporations”, Journal of Banking & Finance, vol. 1, pp 29-54.

Altman.E.I. (1968),“Financial ratios, discriminant analysis and the prediction of corporate bankruptcy”, Journal of Finance, 23, No 4, 589-609.

Bank Al-Maghrib (2010), “Circular on capital requirements for credit, market and operational risk coverage according to internal approaches to credit institutions”, Circular 8/G/2010, Articles 2, 27, 29, 36, 56, 58.

Bank Al-Maghrib (2006), “The allocation of credit risk weights following the dissemination of external credit assessment bodies”,Circular 26 / G / 2006, Articles 11 to 16.

Basel Committee on Banking Supervision (2015), “Standards Revisions to the Standardised Approach for credit risk”.

Basel Committee on Banking Supervision (2013),“Basel III: The Liquidity Coverage Ratio and liquidity risk monitoring tools”.

Basel Committee on Banking Supervision (2011), “Core Principles for Effective Banking Supervision”.

Basel Committee on Banking Supervision (2004), “International Convergence of Capital Measurement and Capital Standards”.

Basel Committee on Banking Supervision (1988), “International Convergence Of Capital Measurement And Capital Standards”.

Black, F., Scholes, M. (1973), “The pricing of option and the corporate liabilities”, Journal of Political Economy, vol. 81, pp 637-654.

Conan J. &Holder M. (1979), “Variables explicatives de performances et contrôle de gestion dans les PMI. Thèse de Doctorat en sciences de gestion, Université de Paris IX.

Deakin E.B. (1972), “A discriminant analysis of predictors of business failure”, Journal of Accounting Research, spring, pp.167-179.

Merton R.C. (1974), “On the pricing of corporate debt: the risk structure of interest rates. Journal of Finance, vol 29, pp 449–470


Refbacks

  • There are currently no refbacks.


............................................................................................................................................................................................................................

HOW DO YOU REGISTER and SUBMIT AN ARTICLE?

Registering and Logging in

Submitting an Article