## Scenario Analysis with the DD-PD Mapping Approach: Stock Market Shocks and U.S. Corporate Default Risk

_IMF Working Papers, May 20, 2021_

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## Bibliographic details
- Authors: Jorge A Chan-Lau
- Published: May 20, 2021
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781513573533.001

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### Methodology: DD-PD mapping
- Introduces the quantile regression-based Distance-to-Default to Probability of Default (DD-PD) mapping.
- Links individual firms’ DD to their real world PD.
- Mapping relies on a handful of parameters, so changes in DD can be generated from:
  - quantitative scenarios, and
  - narrative scenarios informed by expert judgment.

### Key findings and scenario results
- At end-2020, risks from stock market corrections in the U.S. are concentrated in the energy, financial and technology sectors.
- Additional bank capital needs could be large under stress induced by stock market corrections.

### Applications and uses
- PD valuation.
- Capital structure analysis.
- Credit portfolio management.
- Long-term scenario planning analysis.

### Publication and metadata
- Pages: 24
- Volume: 2021
- Issue: 143
- Series: Working Paper No. 2021/143
- DOI: https://doi.org/10.5089/9781513573533.001
- Stock No: WPIEA2021143
- ISBN: 9781513573533
- ISSN: 1018-5941
- Subject: Economic sectors, Financial crises
- Keywords: default risk, distance-to-default, probability of default, quantile regression, scenario analysis, stock markets, stress test
- Author: Jorge A Chan-Lau
- Publication date: May 20, 2021

*Source: https://www.imf.org/en/publications/wp/issues/2021/05/20/scenario-analysis-with-the-dd-pd-mapping-approach-stock-market-shocks-and-u-s-50232*

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_Source: https://www.imf.org/en/publications/wp/issues/2021/05/20/scenario-analysis-with-the-dd-pd-mapping-approach-stock-market-shocks-and-u-s-50232_