Developing a java android application of KMV-Merton default rate model

摘要

This paper presents a developed java android application for KMV-Merton model in predicting the defaut rate of a firm. Predicting default rate is essential in the risk management area as default risk can be immediately transmitted from one entity to another entity. This is the reason default risk is known as a global risk. Although there are several efforts, instruments and methods used to manage the risk, it is said to be insufficient. To the best of our knowledge, there has been limited innovation in developing the default risk mathematical model into a mobile application. Therefore, through this study, default risk is predicted quantitatively using the KMV-Merton model. The KMV-Merton model has been integrated in the form of java program using the Android Studio Software. The developed java android application is tested by predicting the levels of default risk of the three different rated companies. It is found that the levels of default risk are equivalent to the ratings of the respective companies. This shows that the default rate predicted by the KMV-Merton model using the developed java android application can be a significant tool to the risk mangement field. The developed java android application grants users an alternative to predict level of default risk within less procedure.