Default probability estimation via pair copula constructions

摘要

In this paper we present a novel approach for firm default probability estimation. The methodology is based on multivariate contingent claim analysis and pair copula constructions. For each considered firm, balance sheet data are used to assess the asset value, and to compute its default probability. The asset pricing function is expressed via a pair copula construction, and it is approximated via Monte Carlo simulations. The methodology is illustrated through an application to the analysis of both operative and defaulted firms. (C) 2015 Elsevier B.V. and Association of European Operational Research Societies (EURO) within the International Federation of Operational Research Societies (IFORS). All rights reserved.