Journal of Mathematics and Modeling in Finance

Structural Credit Risk Measurement and Corporate Default Prediction in Vietnam: Evidence from a Merton Model

Articles in Press

Document Type : Research Article

Authors

Quynh Nguyen Thi Thuy 1
Lien Vu Thi Phuong 2
Linh Nguyen Mai Quang 3
Manh Le Trong 4
Nga Vu Thi Thuy 5

1 Faculty of Basic Sciences, Academy of Finance, Hanoi, Vietnam.

2 Faculty of Accounting, Academy of Finance, Hanoi, Viet Nam.

3 Institute of International Finance Education, Academy of Finance, Hanoi, Viet Nam.

4 Posts and Telecommunications Institute of Technology (PTIT), Hanoi, Viet Nam.

5 Faculty of Banking and Insurance, Academy of Finance, Hanoi, Viet Nam.

10.22054/jmmf.2026.93270.1292
Abstract
This paper applies the Merton structural model to measure market-implied corporate default risk in Vietnam. Using an initial universe of 1,646 non-financial listed and registered-for trading firms over 2019-2024, we estimate firm-year distance to default (DD) and model implied probability of default (PD) by combining daily equity-market information with accounting-based debt measures through a hybrid Newton-type nonlinear root-finding procedure. After data-availability, liquidity, and convergence filters, the main sample contains 8,054 valid firm-year observations. The results show that default risk reached a local peak in 2022, when the share of firms with PD above 10% rose to 16.46%, consistent with rising funding costs and liquidity stress in Vietnam's corporate bond market. By 2024, risk conditions had improved materially, with median PD declining to 0.43% and the share of firms with PD above 10% falling to 9.24%. Size and sector analyses indicate that risk is concentrated among small-cap, highly leveraged firms and capital-intensive sectors such as real estate, construction, and steel. Event-based validation under a stricter hard-distress definition shows moderate discriminatory power for Merton-based PD among convergent observations, with an ROC-AUC of approximately 0.656. When non-convergent observations are retained and assigned a conservative high-risk score, the AUC declines to approximately 0.624. Under broader exchange-based distress labels, performance is weaker. Accounting logit benchmarks achieve higher out-of-time AUC values, while the hybrid specification provides only incremental improvement. These results indicate that Merton-based DD and PD are useful market-implied early-warning and risk-ranking indicators, but stronger corporate distress assessment in Vietnam requires combining structural indicators with accounting, liquidity, and sectoral variables.

Keywords

Merton Model
Structural Credit Risk
Distance to Default
Probability of Default
Corporate Distress
Vietnam
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Journal of Mathematics and Modeling in Finance

Articles in Press, Accepted Manuscript
Available Online from 24 October 2026

  • Receive Date 03 June 2026
  • Revise Date 11 October 2026
  • Accept Date 12 October 2026

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