# Tagged Questions

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31 views

### How exactly are correlated defaults used/analyzed?

I've read a lot about correlate defaults but I can't seem to understand how they're used practically in a portfolio theory setting. Suppose I have two (?) companies, X and Y, and historic default ...
53 views

### What is the probability of defaulting in year 2?

I was asked this question the other day, but it's been years since I've done this work. If the probability of a company to default in a year is $8\%$, what is the probability that it will default in ...
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### Market Price of Risk in EDF Model

Consider Moody's Expected Default Frequency (EDF) model. To arrive from risk-neutral default probabilities to real-world default probabilities, we need to know ...
36 views

### Bootstrap bond-implied default probabilities in MatLab?

Has anyone used MatLab to extract default probabilities from bond/fixed income prices? MatLab has some built in functionality to do this analysis with CDS ("cdsbootstrap"), but not bonds. Certainly ...
24 views

### Using Put Volatilities to Estimate Firm Leverage/Credit Risk

This paper by Hull, Nelken and White uses implied volatilities in structural credit risk models to back out a market-implied leverage ratio. CreditGrades has a similar implementation using equity ...
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### Valuation Models for Bank Credit Default

What approaches exist for calculating a fair price for a credit default swap for a bank? Most of the traditional valuation models are geared towards industrial firms. Are there any theoretical ...
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### Consolidating Off-Balance Sheet Financing for Banks

Many banks use off-balance sheet vehicles and minority-owned non-consolidated subsidiaries to circumvent capital regulations. The parent bank's asset exposure is taken to be limited to its equity ...
48 views

### Building PD model using Moody's Historical default rates

I want to build a Probability of default model using moody's cumulative default rates. I was trying to calculate the average default intensity rate and from there I dont know where to go. Example : ...
124 views

### Altman Z-Score to Probability of default

I have computed the Altman Z Score for approximatly 2500 companies. I was wondering if mathematically I am allowed to use a logistic function ? Such as: ...
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### Through the Cycle calibration of PD values

It is a known fact that default rates seem to exhibit cyclic behavior. Most probability of default models use one-year averages of default rates to calibrate the models. The one-year averages should ...
87 views

### Pricing homogeneous Basket Default Swap

Consider a basket with $K=10$ names. Default times of the names, $\tau_k$, are i.i.d. random variables with distribution $P(\tau_k \leq t) = 1 - e^{-\lambda t}$. Suppose that each name in the basket ...
67 views

### Business cycles and missing data

For many probability of defaults models in credit risk it is needed to use data observed from a "full" business cycles. Usually a business cycle is defined as a recurring (not necessarily periodic) ...
224 views

### Is marginal probability of default the same as conditional probability of default?

I'm thrown off by the term marginal probability of default. I've seen it defined by some authors as synonymous term for conditional probability of default conditional probability of default: ...
1k views

### Cumulative vs marginal probability of default

I understood the cumulative (aka unconditional) probability of default to be the probability of defaulting in a given period eg: between years 1 and 5. Further $\pi_{cumulative} = 1-e^{-\lambda*t}$ ...
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### Calculating probability of default with no recovery

Given two methods to calculate the 1 year conditional probability of default of a zero coupon bond, I've come up with slightly different but close results. From my approaches below, is it reasonable ...
166 views

### Extracting Default probability from a single CDS

I have to find the CDS's default probability using the simplest Poisson Process (intensity constant). I'm wondering how to get this estimate if I have only a CDS with maturity 5years. If I had ...
31 views

### Alternatives to CDSs for default term structure?

The CDS market seems to be drying up, funding&liquidity issues are now prevalent over credit, so other sources for default probabilities are needed. What else is commonly used to obtain a ...
609 views

### Actually benefiting from logistic regression to estimate probability of default

Does anyone know any events where using logistic regression to estimate probability of default has led to a bank, financial institution, government or anything really to benefit in practice? I see a ...
426 views

### What is Margin of Conservatism

In modelling loss given default,(LGD), we often encounter the term Margin of Conservatism. What is it in layman's terms? I am not able to find a wikipedia page on this.
187 views

### Term structure of default probabilities without market data

With the forthcoming new regulations, IFRS9, financial institutions will be required to model life time expected credit losses. Consequently, it is necessary to model the term structure of default ...
290 views

### Using Financial Ratios to get credit rating or PD

Hello I'm looking for papers, aside from ones that use CDS spreads, about credit rating development or estimating default probability based on financial ratios that also include methodology and maybe ...
311 views

### How to calculate Probability of Default from Survival Probability

I would calculate Probability of Default from Survival Probability. I want to know how they are related. This is how I think they are related: ...