IDEAS home Printed from
   My bibliography  Save this article

What executives should know about structural credit risk models and their limitations: a primer with examples




The global financial crisis has brought to the forefront the need for executives to better understand the uses and limitations of the structural models frequently employed in the valuation and risk management activities of their firms. The mandate to better manage systemic risk exposure, moreover, dovetails in important ways with the aforementioned goal, given recent advances in the use of structural models in the emerging macrofinance literature for quantifying risk transfer between sectors and economies. This article summarizes the basic structural credit risk literature which originated in the work of Merton (1974), highlights several known limitations of such models, along with possible solutions, and discusses the use of structural models in macrofinance, a field that has already begun to generate useful solutions for several multilateral institutions and central banks around the world.

Suggested Citation

  • Malone, Samuel & Rodriguez, Abel & ter Horst, Enrique, 2009. "What executives should know about structural credit risk models and their limitations: a primer with examples," Journal of Financial Transformation, Capco Institute, vol. 27, pages 58-62.
  • Handle: RePEc:ris:jofitr:1386

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item


    Financial crisis; risk management; risk transfer;
    All these keywords.

    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ris:jofitr:1386. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Prof. Shahin Shojai (email available below). General contact details of provider: .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.