Credit Risk Modeling and Valuation: An Introduction

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Credit Risk Modeling and Valuation: An Introduction

by Kay Giesecke of Cornell University

October 24, 2004

Abstract: Credit risk is the distribution of financial losses due to unexpected changes in the credit quality of a counterparty in a financial agreement. We review the structural, reduced form and incomplete information approaches to estimating joint default probabilities and prices of credit sensitive securities.

JEL Classification: G12, G13.

Keywords: credit risk, default risk, structural approach, reduced form approach, incomplete information approach, intensity, trend, compensator.

This paper is republished as Ch.16 in…