The Study of Credit Risk Evaluation Based on DEA Method

Abstract

Based on studying the KMV default distance model, the work of this paper is to calculate the default distance using BCC model in DEA methodology to quantify the credit risk. The principle idea is to use DEA value of the company to replace the market value of the company in KMV model, and use average DEA points of ST companies within the industry instead of default point, then get the Default Distance. The third part is an empirical analysis which using 17 Chinese textile companies in 2007 and 2008, the result shows that default distance calculated with the DEA method does not completely reflect the company's credit risk, but as a discussion of method, the default distance with the DEA method still have research value.