# Questions tagged [default]

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### How to estimate probability of default from bond prices?

How do you use bond prices/yields to infer probabilities of default? I would think of it as follows: Create a relationship between default free (e.g., Germany) and defaultable (e.g., Greece) bond ...
4k views

### What is the unit of the Distance to Default measure?

I read in a book that the distance to default of a company is "2.978". Can anyone please tell me what is the unit implied behind this measure? Are they "years" for instance?
3k views

### How is the default probability implied from market implied CDS spreads for CVA/DVA calculation?

From point 38 on P.17 the default probability can be implied from market implied CDS spreads. "Macro Surface" method is mentioned, but I cannot get any clue of what it is? Where do I get the acedemic ...
2k views

### KMV-Merton Probabilties of Default vs Moody's EDF

Moody's used to publish probability of default estimates from their Moody's EDF model, but they have temporarily discontinued it. I understand that the Moody's EDF model is closely based on the Merton ...
474 views

### Are there any well known methods of testing through-the-cycle rating systems?

Rating systems, as defined by the Basel II Accord, can be classified into two broad types - through-the-cycle (TTC) or point-in-time (PIT) - and the probability of default predicted by such a system ...
154 views

### Best simplified way to model volatility in returns of an investment in a risky fixed income asset

I am currently working on a project where I have analyzed a certain category of fixd income instruments, and I now have the gross aggregate yield as well as the theoretical gross-aggregate default-...
430 views

### is there a mapping from Altman Z-score for private companies to bond ratings or probability of default?

On wikipedia, there is a formula to calculate the Altman Z-score for private companies: Z-score estimated for private firms: T1 = (Current Assets − Current Liabilities) / Total Assets T2 = Retained ...
174 views

### Summary statistic for the average probability of default?

I have the following scenario: Let $X_i$ denote the event where some institution $i$ 'defaults' (don't worry about the exact definition of a default here, it is not relevant to the question at hand). ...
106 views

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### Are Credit Default Swaps used by B2B Service providers or Vendors?

I understand CDS's are often employed in trading strategies between institutions - That is well publicized. What isn't as publicized is how other customers might look to use a CDS. I work in an ...
2k views

### What is the difference between a recovery swap and a CDS?

As I understand it, recovery swaps and CDS are both used to privide hedging against the default risk of a loan. What is the difference between them?
965 views

### Hedging credit risk using Put equity options

I am looking for some paper or similar which deal with this topic: hedging bankruptcy on firm's debt using Put options written on that firm's equity price. This should be based on the assumption that ...
579 views

### Probability of default

I have to calculate probability of default (PD) rates for our clients (I am working in a Bank) based on clients' financials. Could you, please, advise me how to do that? I think we have two Options: ...