Credit Risk Modeling and Valuation: An Introduction

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.

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

JEL Classification: G13