Zhai, H and Russell, J S (1999) Stochastic modelling and prediction of contractor default risk. Construction Management and Economics, 17(5), pp. 563-576. ISSN 01446193
Abstract
The purpose of this paper is to describe a systematic framework of stochastic modelling and prediction of financial default risk of construction contractors. Net-worth-to-asset ratio is identified as an index for default process modelling. The default condition is defined as when the ratio becomes negative the first time. A mean-reverting dynamic model for the contractor default process is found by statistical analysis and is justified by using the theory of optimal capital structure. The stochastic modelling of default uses the time to default as the fundamental random variable. A discrete time trinomial Markov chain model is developed to assess default risk in terms of a cumulative default probability function, a default probability function, and the mean and variance of time to default. Practical examples are given to illustrate the stochastic methods. A default discriminant study on a group of contractors and publicly traded companies validates the methods, and indicates a high predictability of events of default and declines of credit rating.
| Item Type: | Article |
|---|---|
| Uncontrolled Keywords: | capital structure; probability; process modelling; statistical analysis; construction contractor |
| Index terms: | construction contractor, process modelling, default, capital structure, modelling, Markov chain, variance, statistical analysis |
| Subjects: | measurement and scaling, mathematical modelling, practitioner, dispute resolution, design analysis, data science, analytical methods, economic analysis |
| Topics: | Design Practice, Legal Issues, Business Strategy, Research Practice, Engineering Principles, Roles and Professions |
| Descriptive scope: | 3 PCA |
N.B. Descriptive scope is a count of how many of the five facets of empirical research are indicated by the words used in title, abstract and keywords. It is not intended as a judgement on the research; merely a count of the kind of word we would expect to indicate Phenomenon, Concepts, Theoretical framing, Empirical techniques, Analytical techniques. If all five are present, then a code of “5 PCTEA” will indicate this. If you feel the coding for this record is questionable, we welcome discussion around the terms we matched or the way we categorized them. The facet you would expect may not be coded, or a facet may be coded inappropriately. This can also bear on a larger question, of which facets should be treated as defining in construction management research. Please get in touch, and we will look at it. More details here