Simulations by Moody’s Analytics have shown that EDF models outperform both Z score–type models and S&P rating changes as predictors of corporate failure and distress.
A major advantage of Altman’s Z-Score model to measure the credit risk of a customer is the stability of the coefficient weights over time.
Moody’s Analytics (KMV) has developed a model called Expected Default Frequency (EDF) used now by largest US banks to monitor credit risk.
The variance of returns of a portfolio of loans normally is equal to the arithmetic average of the variance of returns of the individual loans.
Which of the above statements are true?
(a) I only
(b) I and II only
(c) I and III only
(d) II and III only
(e) IV only
