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   What is the Structural Credit Risk Model (SCR)?
 
   The StarMine Structural Credit Risk Model (SCR) is one component of the StarMine credit risk model suite.

StarMine SCR evaluates the equity marketís view of credit risk via StarMineís proprietary extension of the structural default prediction framework introduced by Robert Merton that models a companyís equity as a call option on its assets.

In this framework, the probability of default (pd) equates to the probability that the option expires worthless. StarMine SCR produces daily updated estimates of the probability of default or bankruptcy within one year for 35,000 companies globally, including financials. The default probabilities are also mapped to letter ratings and ranked to create 1-100 percentile scores.

Our analysis shows that StarMine SCR is considerably more accurate at predicting defaults than the Altman Z-Score or a basic Merton model, capturing 85% of default events within a 12-month horizon in its bottom quintile of scored companies. In addition to obvious uses for risk management and fixed income security selection, StarMine SCR can also be used to enhance equity selection performance.

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