Abstract

CRUZ MERCHAN, JUAN SERGIO  and  VARGAS VIVES, JAIME. Contingent claim approach to forecasting credit risk based on measurements of the distanceto-default and the probability of bankruptcy in Colombia. estud.gerenc. [online]. 2011, vol.27, n.118, pp.43-66. ISSN 0123-5923.

The purpose of this article is to assess the extent of applicability of bankruptcy - Black and Scholes (1973) and Merton (1974) - to the securities market in Colombia using the contingent claim approach in the context of the new current economic cycle in Latin America. It particularly examines the ability of the contingent claim approach, from the perspective of Moody's KMV, to estimate the two following credit risk indicators: distance to bankruptcy and probability of default. It then provides a comparison of these measurements versus those generated by the market. The findings suggest that there is a possibility of using this model in Colombia, especially with non-listed companies.

Keywords : Contingent claim; bankruptcy indicators; distance-to-default.

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