1
$\begingroup$

I am approaching you with one important for me question.

I have a task to calculate probability of default for our clients. I used an Altman Z-Score model to calculate the Z-Scores for each client.

Question N 1: Could you advise me how can I transform this Z-score to Probability of Default rate(%)?

The second, I am not fully satisfied with the results of Altman model, because, for example, one of our clients has an internal risk class 5 (it means, that it is in a risky zone), but the Z-Score I calculate for this client is quite high, and vice versa.

Question N 2: Can I transform our internal risk classifications (1,2,3....8) to probability of default rate (%)? If I can, how? If it is possible, I will write on which criterias we define our internal risk classifications.

Thanks a lot.

Improve this question
$\endgroup$
7
  • $\begingroup$ Part two of your question sounds a lot like this one which recently got closed: quant.stackexchange.com/questions/32996/calculation-of-pd-rate. $\endgroup$ – LocalVolatility Mar 14 '17 at 15:03
  • $\begingroup$ I went through the link, but it is not answered. $\endgroup$ – Garik Mar 14 '17 at 15:11
  • 1
    $\begingroup$ My point was that posting a question that if that question is off topic then the second part of this one probably is as well. The overlap between the two is truly surprising. $\endgroup$ – LocalVolatility Mar 14 '17 at 15:13
  • $\begingroup$ Good catch @LocalVolatility $\endgroup$ – Bob Jansen♦ Mar 14 '17 at 15:20
  • $\begingroup$ I just have two questions, and have a hope that I will receive a reasonable for me answer or an advice, I do not make comparisons with first part or second part of other topics. Now I want to know whether this link was an answer to my questions? $\endgroup$ – Garik Mar 14 '17 at 15:23