Calculate change in probabilities of default (PDs) of loans connected to companies at hand. This is based on the equity values derived from the DCF model. Said Equity values are used as different starting points for the Merton model (one reflecting the business as usual baseline scenario, the other reflecting the late & sudden shock scenario). The change in PDs can then be used to calculate the Expected Loss due to the shock on the portfolio level.

Calculate change in probabilities of default (PDs) of loans connected to companies at hand. This is based on the equity values derived from the DCF model. Said Equity values are used as different starting points for the Merton model (one reflecting the business as usual baseline scenario, the other reflecting the late & sudden shock scenario). The change in PDs can then be used to calculate the Expected Loss due to the shock on the portfolio level.

calculate_pd_change_overall(
  data,
  shock_year = NULL,
  end_of_analysis = NULL,
  risk_free_interest_rate = NULL
)

Arguments

data

A dataframe containing the (discounted) annual profits

shock_year

A numeric vector of length one that indicates in which year the policy shock strikes in a given scenario

end_of_analysis

A numeric vector of length one that indicates until which year the analysis runs

risk_free_interest_rate

A numeric vector of length one that indicates the risk free rate of interest