You can try Multinomial Regression. In SAS relevant procs are CATMOD, GLOGIT, MLOGIT etc.

<t>Instead of using the second equation, that links Equity Volatility to Asset Volatility, they start with a seed value of Asset Volatility and then calculate implied Asset Value. Seed Asset Volatility can be calculated as the volatility of V, V = Equ+Debt. And then you can iteritely solve for Asset...

also try books by 1)Duffie and Singleton, 2)S&P guys Renault and Servigny

<t>1) How do you calculate the prediction interval? Which distribution to use?A disclaimer first. I am no expert in this field. Pls take my reply with a pinch of salt. Can't one calculate the prediction for Beta distribution? I have no inkling. If one can then the percentage of sample within 5%-95% ...

<t>Rating Agencies first model a measure of LGD by regressing it on relevant factors such as Collateral, Firm level, Industry, Macroeconomic, Geographic info. and then perform inverse beta transformation to normalize it. Further Prediction Intervals, Prediction Error rates (MSE), Correlation with Ac...