Fuzzy structural risk of default for banks in Southern Africa

This paper proposes and examines a new structural risk of default model for banks in frictional fuzzy financial markets. It is motivated by the need to fill shortcomings probability-based credit metric models that are characterised unrealistic assumptions such as crisply precise constant risk-free rates return. The problem investigated here specifically Kealhofer–Merton–Vasicek (KMV)-type estimation extended both market friction represented transaction costs uncertainty modelled fuzziness. novel then validated using cross-sectional data eight commercial drawn from several emerging economies Southern Africa. results proposed fairly stable consistent compared those hazard function currently used relevant it captures practical conditions faced influence their risks quest improve performance shareholders’ wealth. study recommends markets, economies, can adopt implement model.