Company Data

StarMine Structural Credit Risk Model

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  1. Overview
  2. Features & benefits
  3. How it works
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An overview of StarMine Structural Credit Risk Model

StarMine Structural Credit Risk Model (SCR) evaluates the equity market’s view of credit risk via StarMine’s proprietary extension of the structural default prediction framework, introduced by Robert Merton that models a company’s equity as a call option on its assets. The default probabilities are also mapped to letter ratings and ranked to create 1-100 percentile scores.

StarMine’s research has identified the drivers of the structural model framework and improved the traditional framework by:

  • Leveraging StarMine’s equity alpha model expertise by incorporating the Value-Momentum model in the drift rate formulation.
  • Systematically optimizing the formulations for default point and volatility. For example, by using different treatment of balance sheet liabilities for banks and insurance companies.
  • Creating a closed-form solution for the model equations, thereby eliminating erroneous outputs inherent to most structural model frameworks that solve simultaneous non-linear equations numerically.

Key Facts 

  • Geographical coverage
    Global
  • History
    From 1998
  • Data format
    CSV
    Delimited
    GZIP
    JSON
    Python
    SQL
    Text
    User Interface
    XML
    Zip Archive
  • Delivery mechanism
    API
    Deployed/Onsite Servers
    Desktop
    Excel
    FTP
    SFTP
  • Data frequency
    Daily

Features & Benefits

What you get with StarMine Structural Credit Risk Model

  • The SCR model is considerably more accurate at predicting defaults than the Altman Z-score or a basic Merton model.
  • Assesses equity market’s view of credit risk.
  • SCR probability of default equates to the probability that the option expires worthless.

RELEVANT USE CASES

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How it works

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