Credit Risk Models Iii: Reconciliation Reduced - Structural Models
In recent years, some papers hav tried to bridge the gap between the two main approaches in credit risk modelling: structural and reduced form models. Based on incomplete information versions of standard structural models, they are able to obtain reduced form models in which the intensity of default is not given exogenously but determined endogenously within the model and it is a function of the firm's characteristics and the level of informtion that investors posses. They key element to link both approaches lies in the model's information assumptions. Using a specification of a structural model where investors do not have complete information about the dynamics of the processes which trigger the firm's default, these models derive a cumulative rate of default consistent with a reduced form model. This paper pretends to be an introduction to this literature, providing some of basic insights of the modelling structure and the main conclusion and results.
|Date of creation:||Apr 2006|
|Date of revision:|
|Contact details of provider:|| Postal: |
Web page: http://www.cemfi.es/
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Hayne E. Leland and Klaus Bjerre Toft., 1995.
"Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads,"
Research Program in Finance Working Papers
RPF-259, University of California at Berkeley.
- Leland, Hayne E & Toft, Klaus Bjerre, 1996. " Optimal Capital Structure, Endogenous Bankruptcy, and the Term Structure of Credit Spreads," Journal of Finance, American Finance Association, vol. 51(3), pages 987-1019, July.
- Umut Cetin & R. Jarrow & P. Protter & Y. Yildirim, 2004.
"Modeling credit risk with partial information,"
LSE Research Online Documents on Economics
2840, London School of Economics and Political Science, LSE Library.
- Robert A. Jarrow, 2009. "Credit Risk Models," Annual Review of Financial Economics, Annual Reviews, vol. 1(1), pages 37-68, November.
- Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
- Jan Ericsson, 2005. "Estimating Structural Bond Pricing Models," The Journal of Business, University of Chicago Press, vol. 78(2), pages 707-735, March.
- Giesecke, Kay, 2004. "Correlated default with incomplete information," Journal of Banking & Finance, Elsevier, vol. 28(7), pages 1521-1545, July.
- Jin-Chuan Duan, 1994. "Maximum Likelihood Estimation Using Price Data Of The Derivative Contract," Mathematical Finance, Wiley Blackwell, vol. 4(2), pages 155-167.
- Reneby, Joel & Ericsson, Jan, 2001. "The Valuation of Corporate Liabilities: Theory and Tests," SSE/EFI Working Paper Series in Economics and Finance 445, Stockholm School of Economics, revised 19 Dec 2002.
When requesting a correction, please mention this item's handle: RePEc:cmf:wpaper:wp2006_0607. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Araceli Requerey)
If references are entirely missing, you can add them using this form.