We are trying to build a risk neutral PD Model for institutions without CDS.

In Malz's "Financial Risk Management: Models, History and Institutions", Chapter 7, its said that we can extract the hazard rate from the next equation:

enter image description here

My question is, Can we model λ extracted with bonds with an intensity model exactly as it's done with CDS?

Also, If we use Merton, Is it congruent with risk neutral valuation? (Therefore, Can be used for CVA Pricing Calculations?)

Thanks a lot!

  • $\begingroup$ To the bond part: yes and it's a common practice. Sorry don't know much about CVA. $\endgroup$
    – Lipton
    Jan 23, 2018 at 18:12


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service and acknowledge you have read our privacy policy.

Browse other questions tagged or ask your own question.