Additive Intensity Regression Models in Corporate Default Analysis

Research output: Contribution to journalJournal articleResearchpeer-review

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.
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.
LanguageEnglish
JournalJournal of Financial Econometrics
Volume11
Issue number3
Pages443-485
ISSN1479-8409
DOIs
StatePublished - Jun 2013

Keywords

    Cite this

    @article{6f24188c28d54f898d88111cbede3c1e,
    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",
    author = "David Lando and Mamdouh Medhat and Nielsen, {Mads Stenbo} and Nielsen, {S{\o}ren Feodor}",
    year = "2013",
    month = "6",
    doi = "10.1093/jjfinec/nbs018",
    language = "English",
    volume = "11",
    pages = "443--485",
    journal = "Journal of Financial Econometrics",
    issn = "1479-8409",
    publisher = "Oxford University Press",
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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

    TY - JOUR

    T1 - Additive Intensity Regression Models in Corporate Default Analysis

    AU - Lando,David

    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

    U2 - 10.1093/jjfinec/nbs018

    DO - 10.1093/jjfinec/nbs018

    M3 - Journal article

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    JO - Journal of Financial Econometrics

    T2 - Journal of Financial Econometrics

    JF - Journal of Financial Econometrics

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