Bank insolvency risk and Z-score measures with unimodal returns

Abstract

We specialize the established justification for using Z-scores as a risk measure reflecting a bank's probability of insolvency to the case where the bank's distribution of returns is unimodal, obtaining a refined upper bound of the probability of insolvency for this potentially useful special case.

Keywords:

• insolvency risk
• Z-score
• unimodal
• Vysochanskii–Petunin inequality

JEL Classification:

• G21
• G32