Theoretical and Applied Economics
No. 3 / 2016 (608), Autumn
Predicting probability of default of Indian companies: A market based approach
Bhanu Pratap SINGH
Institute of Insurance and Risk Management (IIRM), Telangana, India
Alok Kumar MISHRA
University of Hyderabad, Hyderabad, India
Institute of Insurance and Risk Management (IIRM), Telangana, India
Alok Kumar MISHRA
University of Hyderabad, Hyderabad, India
Abstract. The paper models default probabilities for Indian companies in Black-Scholes- Metron (BSM) framework. The objective Probability of Default (PD) estimates are found to be higher for firms registered with Board of Industrial and Financial Reconstruction (BIFR). The proposed method can be applied to obtain direct PD estimates of companies to track their default status, calculate credit capital and corporate pricing by investors and financial institutions.
Keywords: Credit Risk, BSM Model, Indian Companies, Probability of Default.
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