Maximum likelihood estimation of first-passage structural credit risk models correcting for the survivorship bias
dc.contributor.author | Amaya, Diego | |
dc.contributor.author | Boudreault, Mathieu | |
dc.contributor.author | McLeish, Don L. | |
dc.date.accessioned | 2020-02-04T18:17:50Z | |
dc.date.available | 2020-02-04T18:17:50Z | |
dc.date.issued | 2019-03 | |
dc.description | The final publication is available at Elsevier via https://doi.org/10.1016/j.jedc.2018.11.005. © 2019. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0/ | en |
dc.description.abstract | The survivorship bias in credit risk modeling is the bias that results in parameter estimates when the survival of a company is ignored. We study the statistical properties of the maximum likelihood estimator (MLE) accounting for survivorship bias for models based on the first-passage of the geometric Brownian motion. We find that if we neglect the survivorship bias, then the drift has a positive bias that may not disappear asymptotically. We show that correcting the survivorship bias by conditioning on survival in the likelihood function underestimates the drift. Therefore, we propose a bias correction method for non-iid samples that is first-order unbiased and second-order efficient. The economic impact of neglecting or miscorrecting for the survivorship bias is studied empirically based on a sample of more than 13,000 companies over the period 1980 through 2016 inclusive. Our results point to the important risk of misclassifying a company as solvent or insolvent due to biases in the estimates. | en |
dc.identifier.uri | https://doi.org/10.1016/j.jedc.2018.11.005 | |
dc.identifier.uri | http://hdl.handle.net/10012/15614 | |
dc.language.iso | en | en |
dc.publisher | Elsevier | en |
dc.subject | survival bias | en |
dc.subject | geometric Brownian motion | en |
dc.subject | conditional estimation | en |
dc.subject | default probability | en |
dc.subject | inference | en |
dc.subject | diffusion processes | en |
dc.title | Maximum likelihood estimation of first-passage structural credit risk models correcting for the survivorship bias | en |
dc.type | Article | en |
dcterms.bibliographicCitation | Diego Amaya, Mathieu Boudreault, Don L. McLeish, Maximum likelihood estimation of Þrst-passage structural credit risk models correcting for the survivorship bias, Journal of Economic Dynamics & Control (2019), doi: https://doi.org/10.1016/j.jedc.2018.11.005 | en |
uws.contributor.affiliation1 | Faculty of Mathematics | en |
uws.contributor.affiliation2 | Statistics and Actuarial Science | en |
uws.peerReviewStatus | Reviewed | en |
uws.scholarLevel | Faculty | en |
uws.typeOfResource | Text | en |