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A note on the survival probability in CreditGrades

By Rüdiger Kiesel and Luitgard A. M. Veraart

Abstract

This paper examines survival probability in the CreditGrades model. We find that the exact closed-form formula stated in Finger et al (2002) for the survival probability of a firm is incorrect. We correct the formula and compare the exact survival probability with the frequently used approximation. We find that there are circumstances in which these two formulas differ significantly. This is in particular the case if one considers highly leveraged companies such as banks

Topics: HF Commerce, HG Finance
Publisher: Incisive Media Investments Limited
Year: 2008
OAI identifier: oai:eprints.lse.ac.uk:37619
Provided by: LSE Research Online
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