Structural Credit Risk Models: Endogenous versus Exogenous Default
29 Pages Posted: 16 Sep 2012
Date Written: January 25, 2012
This article reviews structural credit risk models. Special emphasis is on the distinction between endogenous default versus exogenous default and the economic implications of the different assumptions. It is argued that models with endogenous default provide more insight into the default process. On the other hand, assuming exogenous default gives the flexibility to include certain features that are observed in actual credit markets.
Keywords: Structural credit risk models, Default probability, Bond pricing, Credit spreads
JEL Classification: G00, G12, G33
Suggested Citation: Suggested Citation