PPT Slide

Expected default frequency

• Expected default frequency (EDF) is a forward-looking measure

of actual probability of default. EDF is firm specific.

• KMV model is based on the structural approach to calculate EDF

(credit risk is driven by the firm value process).

– It is best when applied to publicly traded companies, where the

value of equity is determined by the stock market.

– The market information contained in the firm’s stock price

and balance sheet are translated into an implied risk of default.

Previous slide

Next slide

Back to first slide

View graphic version