DTD measures the number of standard deviation moves required to bring the expected value of a firm's assets below the default point, X.
The tabulated results are based on setting the default point equal to the sum of (1) debt in current liabilities, plus (2) 50% of long-term debt.
Credit rating = f(COV, ROA, VOL, LEV, SIZE, SIGE, MVE, MVA_X), (ACCT-MKT) where SIGE is the daily standard deviation of stock returns, MVE is the natural log of market value of equity, and MVA_X is the natural log of the ratio of market value of assets to the default point.
Distance to default (DTD): DTD measures the number of standard deviation moves required to bring expected total asset value to the default point.
3) We also find that the signal-to-noise ratio of subordinated debt spreads should be quite low far away from the default point of the bank.
The current distance d from the default point (where In [V.
represents the number of standard deviations that the firm is from the default point.