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Title:Does modeling framework matter? A comparative study of structural and reduced-form models PDF Logo
Authors:Gündüz, Yalin
Uhrig-Homburg, Marliese
Issue Date:2011
Series/Report no.:Discussion Paper Series 2: Banking and Financial Studies 2011,05
Abstract:This study provides a rigorous empirical comparison of structural and reduced-form credit risk frameworks. As major difference we focus on the discriminative modeling of default time. In contrast to previous literature, we calibrate both approaches to bond and equity prices. By using same input data, applying comparable estimation techniques, and assessing the out-of-sample prediction quality on same time series of CDS prices we are able to judge whether empirically the model structure itself makes an important difference. Interestingly, the models' prediction power is quite close on average. Still, the reduced-form approach outperforms the structural for investment-grade names and longer maturities.
Subjects:credit risk
structural models
reduced-form models
default intensity
stationary leverage
credit default swaps
JEL:G13
ISBN:978-3-86558-701-5
Document Type:Working Paper
Appears in Collections:Discussion Paper Series 2: Banking and Financial Studies, Deutsche Bundesbank

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