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The Chief of Quantitative Analytics at a financial institution is considering a transition from predominantly using external rating agencies' credit ratings to employing the bank’s proprietary internal rating models for default prediction. These internal models are developed through statistical and structural techniques. To secure approval from the executive team, the Chief needs to clearly explain and highlight the advantages of using these structural models for forecasting defaults.
A
When applying logistic regression models, the coefficients are estimated by the maximum likelihood estimation (MLE) method.
B
The Merton model can be effectively applied to both private and publicly listed companies.
C
The coefficients of linear discriminant analysis are estimated by the method of least squares.
D
The KMV model includes equity and optionless long-term debt only, which can simplify the analysis of issuers with complex capital structures.