Fitch Ratings has introduced a new index called Fitch Solutions probability of default index, which was derived from the equity implied ratings and probability of default model (EIR).
The EIR model utilizes a firms market value of assets (deduced from an entitys market capitalization), historical volatility of the equity price and firm debt, as well as firm-specific financial ratios to produce one- and five-year probabilities of default on more than 25,000 entities globally.
The probability of default index is constructed as a daily average probability of default weighted by each entitys outstanding debt-level, and can be calculated on a geographic market and industry level.
The high yield default index tracks the annual default rates of the high yield corporate issuer universe. While separate indexes are calculated for North America and Europe, this particular analysis focused on North American default rates.
Default rates are calculated by dividing the volume of defaulted bonds by the average principal volume outstanding for the time period under observation.