The Impact of Persistence in Volatility over the Probability of Default
We evaluate the impact of persistence in volatility over the probability of default in Merton’s credit risk model. Our main conclusion is that a high degree of persistence, as it is observed in equity returns, implies a lower probability of default for those cases where firms possess a high level of leverage.
Year of publication: |
2013-06
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Authors: | Alfaro, Rodrigo ; Golberger, Natán |
Institutions: | Banco Central de Chile |
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