| Summary: | 碩士 === 國立高雄第一科技大學 === 金融所 === 98 === The empirical evidence shows that the existence of fat-tail or jump in many financial assets return or assets value distribution is a really common phenomenon. In this paper, we try to add a jump component in order to describe the sudden drop or increase in firm’s asset value, so we consider the well-know jump diffusion process in setting the asset dynamic process for capturing the discontinuousness of asset value. As for the parameters estimation, we rely on the method called EM algorithm instead of maximum likelihood estimation. Finally, we calculate the risk neutral default probability under Merton jump model and constructed a default risk predictive model.
In this study, we also compare the prediction performance to the commonly adopted model, Merton model, Z-score model and even the new version of Z-score model. We find evidence that the Z-score models outperform our default predictive model. And between the prediction performance of our model and of the traditional Merton model, we cannot tell which one is better off.
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