Validation of Merton Distance to Default Model under Ambiguity
2013/04/30
研討會日期 : 2013-04-30
時間 : 14:30
主講人 : Professor Leh-Chyan So
地點 : Conference Room B110
演講者簡介 : Leh-Chyan So received her Ph.D. in International Business from National Taiwan University in 2004. She is currently serving as Assistant Professor of Quantitative Finance at National Tsing Hua University. Her research field is in asset pricing, financial engineering and international finance.
演講摘要 : Bharath and Shumway (2008) provide evidence that shows that it is the functional form of Merton’s (1974) distance to default (DD) model that makes it useful and important for predicting defaults. In this study, we investigated whether the default predictability of the Merton DD model would be affected by taking investors ambiguity aversion into consideration. The Cox proportional hazard model is employed to compare the forecasting power of Bharath and Shumway’s naive model (which retains the functional form of the Merton DD model and computes the default probability in a naive way) with our new model (which treats investors’ ambiguity aversion as additional information). We provide sufficient evidence to show that our new model can beat Bharath and Shumway’s naive model. In addition, our results show that the statistical significance of Bharath and Shumway’s naive default probability is driven out by ours in the CDS spread regressions.
