KMV Credit Monitor Model

[dthigale]

Hi David,

In the spread sheet 6.d.1, last section calcuating PD with Stulz formula

you have calculated the the numerator value using Debt Value / Firm value ( cell E63/E62). As per formula it is Firm Value / Debt value.

However when I calculate using Firm value / Debt Value I get the same value of N/D as yours -3.00352.

Could you please check?

Also the formla says Log but we have taken LN

2. I am not able to download the spreadsheet 6.c.2 Altamns Cost-plus Pricing. Is it uploaded?

Thanks.

D.

 

[David Harper CFA FRM]

Hi Dinesh,

You are looking at the "supplemental" version. Please look above at row 32. That follows de Servigny's formula and uses Firm Value / Debt.
In which case, PD = N(-DD) = N(-3)

Row 61 is shown merely because Stulz also has a formula in Chapter 18 which uses Face Value Debt / Firm Value. In which case, the normal deviate is -3 instead of 3, with the same result.

I show them both only b/c some are looking at Stulz and some de Servigny; but they are equivalent as the normal is symmetrical. Ultimately, both "approaches " are equivalent.

Re log: he means natural log (LN) as this a same d2 that inputs into Black-Scholes (i.e., lognormal prices)

Re: 6.c.2 looks okay to me ... occassionally, the retreival of the zoho sheet doesn't work, but then just try a hard refresh...but if you have excel, I hope you realize, the most effective was to retreive is to click on the excel link (that is a pointer to the native XLS file) and the excel is always robust whereas the zohos aren't effective for some advanced sheets

David