From Fault Tree to Credit Risk Assessment: An Empirical Attempt

Since the 1980s, the fault tree theory has been known as a great development in the industrial systems' sector. Its first goal is to estimate and model the probability and events' combination which could potentially lead to the failure of a given system. Later static and dynamic studies such as Dugan, Venkataraman and Gulati (1997), Gulati and Dugan (1997) and Ngom et al. (1999), were conducted. Improvements were also suggested by Anand and Somani (1998), Zhu et al. (2001) and Reory and Andrews (2003) among others. Since credit risk valuation attempts to quantify firms' default risk, the article proposes to apply one alternative approach of fault tree, or equivalently, a reliability study to assess firms' default risk.