Distance to Default Estimates for Romanian Listed Companies

This paper assesses the evolution of the distance to default during the recentcrisis for some of the most traded companies on Bucharest Stock Exchange. The distanceto default is formulated under the framework of the structural model of Leland (1994b)where the default threshold is endogenously determined. This model is reformulated as a(non-linear) state - space model where the (unobservable) state variable is the distance todefault. After reviewing different methods proposed in the literature for estimation of thestructural models, we estimate the model’s parameters within the Bayesian approach withMarkov Chain Monte Carlo (MCMC) methods.