Reuters StarMine Structural Credit Risk Model Components

Summary

The document identifies Reuters’ one-year default probability and credit ratings as outputs of its proprietary StarMine Structural/SmartRatios Credit Risk model. It explains that the model combines financial ratios and other measures associated with credit risk, grouping them into profitability, leverage, debt coverage, liquidity, and growth. Industry-specific measures may also be included, with examples such as banks, insurers, retailers, utilities, and airlines.

Reported outputs include component scores, default probabilities, an overall percentile score, and letter ratings. The source does not provide a formal model specification or explain how to reproduce the score; it says public descriptions give only a broad outline. Researchers therefore cannot infer the exact estimation method or replicate the model from this account alone. Its value is as a description of the model’s inputs and outputs, not as a guide to calculating default probabilities independently.

Key ideas

• Reuters uses a proprietary StarMine Structural/SmartRatios model to estimate credit risk.
• The model groups predictive financial measures into profitability, leverage, debt coverage, liquidity, and growth.
• It may add industry-specific metrics for sectors such as banking, insurance, retail, utilities, and airlines.
• Outputs include component scores, default probabilities, percentile scores, and letter ratings.
• The document provides no formal specification, so the model cannot be replicated from its description.

Tags

# What structural model does Reuters use for default probability?


# What structural model does Reuters use for default probability?












When using Reuters, for each listed company there is credit tab that shows relevant information in terms of credit default. There is also rating class as well as one year default probability. It is said they use a structural model - does anyone knows what structural model do they use?

## Answer by Quantopik (score 4, accepted)

https://quant.stackexchange.com/a/18291

Reuters uses a proprietary model defined StarMine structural/SmartRatios Credit Risk model that has been developed by themselves and provided with the Reuters data service.

It does not exist a formal definition or paper about the model, in which it is explained how to get that score; Reuters simply explains roughly what is in its website without going into details.

Here you can find the link to the webpage

> The model combines financial ratios and metrics that are predictive of credit risk into five components: profitability, leverage, debt coverage, liquidity, and growth. The model also incorporates industry-specific metrics where appropriate, particularly for banks and insurance companies but also for retailers, utilities, airlines, and others. The model output includes 1-100 scores for each of the five components, default probabilities, overall 1-100 percentile scores, and letter ratings.

Hope this helps.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.