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Assessing the default risk by means of a discrete‐time survival analysis approach
Author(s) -
De Leonardis Daniele,
Rocci Roberto
Publication year - 2008
Publication title -
applied stochastic models in business and industry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.413
H-Index - 40
eISSN - 1526-4025
pISSN - 1524-1904
DOI - 10.1002/asmb.705
Subject(s) - discrete time and continuous time , econometrics , survival analysis , proportional hazards model , computer science , duration (music) , logistic regression , event (particle physics) , predictive power , interval (graph theory) , statistics , economics , mathematics , art , philosophy , physics , literature , epistemology , quantum mechanics , combinatorics
In this paper, the problem of company distress is assessed by means of a multi‐period model that exploits the potentialities of the survival analysis approach when both survival times and regressors are measured at discrete points in time. The discrete‐time hazards model can be used both as an empirical framework in the analysis of the causes of the deterioration process that leads to the default and as a tool for the prediction of the same event. Our results show that the prediction accuracy of the duration model is better than that provided by a single‐period logistic model. It is also shown that the predictive power of the discrete‐time survival analysis is enhanced when it is extended to allow for unobserved individual heterogeneity (frailty). Copyright © 2008 John Wiley & Sons, Ltd.