Default Probabilities quantitatively measures the credit risk that a borrower will be unable or unwilling to repay its debt. An accurate model to estimate, as a function of time, these default probabilities is of cruc...Default Probabilities quantitatively measures the credit risk that a borrower will be unable or unwilling to repay its debt. An accurate model to estimate, as a function of time, these default probabilities is of crucial importance in the credit derivatives market. In this work, we adapt Merton’s [1] original works on credit risk, consumption and portfolio rules to model an individual wealth scenario, and apply it to compute this individual default probabilities. Using our model, we also compute the time depending individual default intensities, recovery rates, hazard rate and risk premiums. Hence, as a straight-forward application, our model can be used as novel way to measure the credit risk of individuals.展开更多
文摘Default Probabilities quantitatively measures the credit risk that a borrower will be unable or unwilling to repay its debt. An accurate model to estimate, as a function of time, these default probabilities is of crucial importance in the credit derivatives market. In this work, we adapt Merton’s [1] original works on credit risk, consumption and portfolio rules to model an individual wealth scenario, and apply it to compute this individual default probabilities. Using our model, we also compute the time depending individual default intensities, recovery rates, hazard rate and risk premiums. Hence, as a straight-forward application, our model can be used as novel way to measure the credit risk of individuals.
