Chapter 20: Reduced-Form Credit Risk Models

In this section

• Intensity Models and Default Intensities
  Gain a deep understanding of reduced-form credit risk modeling, focusing on the concept of default intensities, the Poisson process, calibration techniques, and real-world applications for pricing credit-sensitive instruments.
• Credit Spread Modeling
  A deep dive into how reduced-form credit risk models translate observed market spreads into default intensities, recoveries, and risk premia.
• Strengths and Limitations of Reduced-Form Approach
  This article provides a thorough exploration of the strengths and limitations of reduced-form models for credit risk, discussing minimal assumptions, ease of calibration, random arrival processes, reliance on market data, scenario analysis, and more.
• Practice Vignette: Default Probabilities in a Reduced-Form Model
  Explore how to estimate default probabilities for a BBB-rated corporate issuer using a simplified hazard rate model, including adjustment for scenario changes and recovery rate assumptions.