After one day of research i did not figured how to compute the input volatility for PRIVATE COMPANY in order to calculate the PD.
My goal is to compute the PD of each of my company in my portfolio, all companies are private companies. To do that i found 2 models that can fit my expectation:
The Merton's Model and KMV model.
Problem for both I cannot figured it out how to calculate the volatility.
For your information, I have accounting data at least for 3 years up to 10 years for some companies.
I could send you my excel sheet if you would like. It is very important for me as it is part of my master thesis.
Thank you in advance for your help.
Answer
Accounting data won't work for what you are looking for. The only way to do it is to look to public firms on same industry, similar growth stage, same regulatory/legal challenges and compute the volatility of those and use it as a proxy for your firm. It is the best you will be able to get, and it will be a bad approximation. The Merton and KMV models already rely on some non-trivial assumptions.
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