Modelling of Default Risk: an Overview

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Modelling of Default Risk: an Overview

by Monique Jeanblanc of the Université d'Évry Val d'Essonne, and
Marek Rutkowski of the Warsaw University of Technology

October 27, 1999

Abstract: The aim of these notes is to provide a relatively concise - but still self-contained - overview of mathematical notions and results which underpin the valuation of defaultable claims. Though the default risk modelling was extensively studied in numerous recent papers, it seems nonetheless that some of these papers lack a sound theoretical background. Our goal is to furnish results which cover both the classic value-of-the-firm (or structural) approach, as well as the more recent intensity-based methodology. For a more detailed account of mathematical results related to the modelling of default risk, the interested reader is referred to the companion work by M. Jeanblanc and M. Rutkowski: Modelling of Default Risk: Mathematical Tools.

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