Managing Credit Risk: Assessing the Probability of Corporate Bankruptcy using Quantitative Risk Analysis

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Managing credit risk might be the single most important business area for any commercial bank. The assessment of "good" and "bad" corporate clients is a important task for a creditor. A bad debtor is a corporate client with hardships in meeting the continous claims (interest payments) that a creditor requires. One way of evaluating or separating a "bad" client from a "good" client is to assess the propensity for the client to file for bankruptcy. This thesis examines 226 firms in the Swedsh market in the quest of predicting corporate bankruptcy. Three quantitative models are used: (i) Discriminant Analysis; (ii) Logistic Regression and; (iii) Neural Networks. Our results show that we are able to predict bankruptcy to up to 87%. Further, the ...