Archive
Pip: Eon Investment β where the question “how many companies might collapse at once” gets a mathematically elegant answer, and somehow that’s reassuring. Mara: Today we’re covering default […]
In the previous article, we discussed the core idea behind the Gaussian Copula model. The model does not correlate defaults directly. Instead, it creates a Hidden Credit Score […]
In previous articles, I discussed the reduced-form approach to default correlation, which explains correlation through hazard rates but does not fully capture the relationships between individual companies. As […]
Derivatives also have credit risk, and incorporating that risk into their price is relatively more difficult than in the case of stocks or bonds. When options or futures […]
π― One weakness of credit ratings is that they are updated relatively infrequently, while credit risk itself can change significantly over short periods of time. As it turns […]
A higher yield on corporate bonds indicates the presence of default risk. If we assume that the spread represents the product of default probability and loss given default: […]
A credit rating β AAA, BBB, and so on β is a compact measure of relative credit risk. It shows how risky one debtor is compared with another. […]
