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Author(s) / Editor(s): 
  • Wilmar Cabrera-Rodríguez
  • Santiago Segovia-Baquero
  • Juan Sebastián Mariño-Montaña
  • Eduardo Yanquen

Probability of Default of Colombian Financial Institutions: A Structural Approach

The series Borradores de Economía (Working Papers on Economics) contributes to the dissemination and promotion of the work by researchers from the institution. On multiple occasions, these works have been the result of collaborative work with individuals from other national or international institutions. This series is indexed at Research Papers in Economics (RePEc). 

Publicado el: 
Tuesday, 26 November 2019

The opinions contained in this document are the sole responsibility of the author and do not commit Banco de la República or its Board of Directors.

 

Abstract

 

This paper evaluates which would be the probability of default of ve colombian nancial institutions using a structural approximation to model their balance sheet. The proposed specication, in which the default probability is determined endogenously, shows a better t with respect to Merton's classical model, which was used as benchmark. The model reduces some of the limitations found in the models that have been used traditionally to evaluate the probability of default, and allows a better understanding of the balance sheet structure of the nancial institutions and the way they face stress situations.

 

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