Does Default Risk of the Listed Company Increase Since the Global Financial Crisis?—Analysis Based on the Jump Changes in Chinese Company’s Asset Value
Recently, Chinese companies are constantly shocked by external and internal unexpected events, such as US financial crisis, European debt crisis, snow disasters and earthquakes, which make all their assets values jump to the negative direction in a short time and thus increase the default rates of companies in different degrees. Because the default risk is larger as the jump risk of company’s total asset value is higher in short term, it needs to measure company’s jump risk and analyze the factors causing the different jump features. Thus, we assume that company’s asset value follows diffusion-jump stochastic process, from which we derive its probability distribution. We further use the variance of jump amplitude in the distribution as the metric to measure the jump risk, and make statistical analysis of the effect of systematic and some major idiosyncratic factors on the jump change. And we find jump risk of company has positive relation with the occurrence of sudden events, the likelihood of being specially treated, and the asset-liability ratio, and has negative relation with the scale, the capability of maintaining the sustained development and its dependence on the macro economic growth.
Key words: Default risk; Asset value; Jump risk; Systematic jump; Idiosyncratic factor
Bjorn, Eraker (2004). Do Stock Prices and Volatility Jump? Reconciling Evidence from Spot and Option Prices. The Journal of Finance, 59(3), 1367-1403.
Luciano, C., Simon, P., & Alessandro, S. (2005). Assessing Credit with Equity: A CEV Model with Jump to Default. Working Paper. Tilburg University.
Luciano, C., Simon, P., & Alessandro, S. (2009). Systematic Equity-Based Credit Risk: A CEV Model with Jump to Default. Journal of Economic Dynamics and Control, 33(1), 93-108.
Cremers, M., Driessen, J., & Maenhout, P. (2008a). Explaining the Level of Credit Spreads-Option-Implied Jump Risk Premia in a Firm Value Model. The Review of Financial Studies, 21(5), 2209-2242.
Cremers, M., Driessen, J., & Maenhout, P. et al. (2008b).Individual Stock-Option Prices and Credit Spreads. Journal of Banking & Finance, 32(12), 2706-2715.
Barbedo, C. H. S., & Lemgruber, E. F. (2009). A Down-and-out Exchange Option Model with Jumps to Evaluate Firms Default Probabilities in Brazil. Emerging Markets Review, 10(3), 179-190.
ZHANG, Y. B., ZHOU, H., & ZHU, H. B. (2009). Explaining Credit Default Swap Spreads with the Equity Volatility and Jump Risks of Individual Firms. Review of Financial Studies, 22(12), 5099-5131.
TANG, D. Y., & YAN, H. (2010). Market Conditions, Default Risk and Credit Spreads. Journal of Banking & Finance, 34, 743-753.
Tauchena, G., & ZHOU, H. (2011). Realized Jumps on Financial Markets and Predicting Credit Spreads. Journal of Econometrics, 160, 102-118.
Naifar, N. (2012). Modeling the Dependence Structure Between Default Risk Premium, Equity Return Volatility and the Jump Risk: Evidence from a Financial Crisis. Economic Modeling, 29, 119-131.
TANG, Q. M., & HUANG, R. (2010). Jump-Diffusion Model Based Default Risk Measurement and Analysis for Listed Company in China. The Journal of Quantitative & Technical Economics, 27(10), 101-115 (in Chinese).
Stan, Beckers (1981). A Note on Estimating the Parameters of the Diffusion-Jump Model of Stock Returns. The Journal of Financial and Quantitative Analysis, 16(1), 127-140.
Dragon, Y. T., & HONG, Y. (2010). Market Conditions, Default Risk and Credit Spreads. Journal of Banking and Finance, 34, 743-753.
- There are currently no refbacks.
If you have already registered in Journal A and plan to submit article(s) to Journal B, please click the CATEGORIES, or JOURNALS A-Z on the right side of the "HOME".
We only use three mailboxes as follows to deal with issues about paper acceptance, payment and submission of electronic versions of our journals to databases:
firstname.lastname@example.org; email@example.com; firstname.lastname@example.org
Copyright © 2010 Canadian Research & Development Centre of Sciences and Cultures
Address: 730, 77e AV, Laval, Quebec, H7V 4A8, Canada
Telephone: 1-514-558 6138