New models accurately predict Lehman's collapse and impact on equity swaps.
The article develops models to predict when a company might default on its debts by looking at its financial health and market conditions. These models were tested using data from Lehman Brothers before they went bankrupt. The results show that the models can accurately predict default events, especially when considering uncertainty in financial information. The study also looked at how these models can be used to price the risk of a company not being able to fulfill its obligations in an Equity Return Swap.