The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-Wide Risk Transfer

By Yingbin Xiao, Dale F. Gray, Cheng Hoon Lim, Michael T. Gapen

July 1, 2004

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Yingbin Xiao, Dale F. Gray, Cheng Hoon Lim, and Michael T. Gapen The Contingent Claims Approach to Corporate Vulnerability Analysis: Estimating Default Risk and Economy-Wide Risk Transfer, (USA: International Monetary Fund, 2004) accessed December 26, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

In this paper, we examine the ability of the contingent claims approach (CCA) to identify corporate sector and economy-wide vulnerabilities. We apply the Moody's MfRisk model, which uses aggregated CCA principles, to assess vulnerabilities retroactively in two historical country cases. The results indicate that the method may prove helpful in identifying corporate sector vulnerabilities and estimating the associated value of risk transfer across interrelated balance sheets of the corporate, financial, and public sectors.

Subject: Asset valuation, Corporate sector, Financial sector, Financial statements, Public sector

Keywords: Asset value, Asset volatility, Bank assets, Credit risk, Put option, Short-term debt, WP

Publication Details

Pages:

43
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/121
Stock No:

WPIEA1212004
ISBN:

9781451854411
ISSN:

1018-5941

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