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The aim is to explore an innovative framework for estimating the likelihood of default in firms, taking into account regulatory considerations.

March 14, 2026Risk ManagementOpen Access

A closer look at the probability of default taking into account the current regulatory considerations

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The aim is to explore an innovative framework for estimating the likelihood of default in firms, taking into account regulatory considerations.
Introduced a scenario-based framework for assessing firm-level risks.
Utilized Monte Carlo simulation to visualize different business scenarios.
Aggregated firm-specific risks to generate a likelihood of default.
Examined a medium-sized company as a case study.
Scenario-implied likelihood of default provided insights beyond standard probability of default models.
The new framework supports more transparent internal risk assessments and forward-looking decisions.
Illustrated case study demonstrated practical applications of the framework in risk analysis.

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Demonstrates a new framework for estimating risk and default in firms, suggesting improvements for internal assessments.

Börner et al. (2026) studied this question.

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