PPT Slide
Weaknesses of KMV approach
• It requires some subjective estimation of the input parameters.
• It is difficult to construct theoretical EDF’s without the assumption
of normality of asset returns.
• Private firms’ EDFs can be calculated only by using some
comparability analysis based on accounting data.
• It does not distinguish among different types of long-term bonds
according to their seniority, collateral, covenants, or convertibility.