Journal of Credit Risk
ISSN:
1744-6619 (print)
1755-9723 (online)
Editor-in-chief: Linda Allen and Jens Hilscher
A note on the survival probability in CreditGrades
Rüdiger Kiesel, Luitgard A. M. Veraart
Abstract
ABSTRACT
This paper examines survival probability in the CreditGrades model. We find that the exact closed-form formula stated in Finger et al (2002) for the survival probability of a firm is incorrect. We correct the formula and compare the exact survival probability with the frequently used approximation. We find that there are circumstances in which these two formulas differ significantly. This is in particular the case if one considers highly leveraged companies such as banks.
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