Additive Intensity Regression Models in Corporate Default Analysis

Research output: Contribution to journalJournal articleResearchpeer-review

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Abstract

We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant.
Original languageEnglish
JournalJournal of Financial Econometrics
Volume11
Issue number3
Pages (from-to)443-485
Number of pages43
ISSN1479-8409
DOIs
Publication statusPublished - Jun 2013

Keywords

  • Default risk modeling
  • Aalen’s additive regression model
  • Martingale residual processes

Cite this

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title = "Additive Intensity Regression Models in Corporate Default Analysis",
abstract = "We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant.",
keywords = "Aalen's additive regression model, Default risk modeling, Martingale residual processes, Default risk modeling, Aalen’s additive regression model, Martingale residual processes",
author = "David Lando and Mamdouh Medhat and Nielsen, {Mads Stenbo} and Nielsen, {S{\o}ren Feodor}",
year = "2013",
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language = "English",
volume = "11",
pages = "443--485",
journal = "Journal of Financial Econometrics",
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Additive Intensity Regression Models in Corporate Default Analysis. / Lando, David; Medhat, Mamdouh; Nielsen, Mads Stenbo; Nielsen, Søren Feodor.

In: Journal of Financial Econometrics, Vol. 11, No. 3, 06.2013, p. 443-485.

Research output: Contribution to journalJournal articleResearchpeer-review

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AU - Medhat, Mamdouh

AU - Nielsen, Mads Stenbo

AU - Nielsen, Søren Feodor

PY - 2013/6

Y1 - 2013/6

N2 - We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant.

AB - We consider additive intensity (Aalen) models as an alternative to the multiplicative intensity (Cox) models for analyzing the default risk of a sample of rated, nonfinancial U.S. firms. The setting allows for estimating and testing the significance of time-varying effects. We use a variety of model checking techniques to identify misspecifications. In our final model, we find evidence of time-variation in the effects of distance-to-default and short-to-long term debt. Also we identify interactions between distance-to-default and other covariates, and the quick ratio covariate is significant. None of our macroeconomic covariates are significant.

KW - Aalen's additive regression model

KW - Default risk modeling

KW - Martingale residual processes

KW - Default risk modeling

KW - Aalen’s additive regression model

KW - Martingale residual processes

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