Innovative Approach for Forecasting Corporate Default Risk

Abstract

              Innovative Approach for Forecasting Corporate Default Risk

       Submitted To: Journal of Global Economy

                               By: Prashanta Kumar Behera, PhD

                               Email: pkb_behera@yahoo.in . Ph : 91+8108932693

Abstract: Present time corporate default risk parameters are dynamic in nature and understanding how these parameters change in time is a fundamental task for risk management. In this research paper I am trying to forecast for corporate default rates.  I work with historical credit migrations data to construct some time series of interest and to visualize default rates dynamics and also, I use some of the series constructed and some additional data to fit a forecasting model for corporate default rates and to shows some back testing and stress testing. A linear regression model for corporate default rates is presented but the tools and concepts described can be used in combination with other forecasting methodologies.

Keywords:  Default risk, back testing, stress testing and transition matrix.