Altman's Z score for credit risk

Altman's Z is the most famous type of linear discriminant model: borrowers are classified into high or low default risk categories. It does not directly give a probability of default (PD), although we can map to the score to a credit rating and map the rating to a PD (so there is an indirect path from the score to the PD). Four drawbacks: 1. Not granular: only gives default/zone of ignorance/no default; 2. Constant factor weights (i.e., factor weights may be time varying); 3. Only considers five fundamental variables, ignores other variables; 4. No centralized database on defaulted business loans (not really an Altman's critique at all)

Category:

Education

Tags:

• Finance
• credit
• risk
• loan
• interest
• rate
• default

[TheKamilla6800]

@voiceofutube

hi, could you please help me, becuase i am exactly in the same situation like you with my 8000 words on "prediction of probability of default"... i found lots of articles n journals about it, but my time is running out. if it is possible for you to send me relative dissertation raw drafts will really apreciate it!!!1 thanks

[voiceofutube]

Hi, I need to write a 15000 words dissertation on "Prediction of Financial Distress of Companies" and of course will use Altman's Z-Score and his artilcle for that purpose. Do you have any advice or suggestion for me? If you can help me with some more literature on this topic and any specific methodology to use? I'll appreciate your help. Thanks