A simple empirical model of equity-implied probabilities of default

Altman, EdwardFargher, NeilKalotay, Egon2015-12-101059-8596http://hdl.handle.net/1885/65706Practitioners and academics have exploited the theoretical restrictions developed in Merton [1974] to predict distress based on the risk-neutral probability of default inferred from equity prices. Recent empirical studies such as Hillegeist, Keating, Cram, and Lundstedt [2004], and Bharath and Shumway [2008] have advocated the value of the approach relative to widely used alternatives.A simple empirical model of equity-implied probabilities of default201110.3905/jfi.2011.20.3.0712015-12-10