A Mixed Approach to Modeling Default Risk

Structural and reduced-form models are two well-established approaches to modelling a firm’s default risk. Here, Li Chen, Damir Filipovic and Vincent Poor develop a new default risk modelling strategy based on combining these two frameworks in order to overcome the weaknesses of each. The novelty of this model lies in its explicit and tractable structure. Empirical testing further shows that the proposed mixed model significantly outperforms the structural and reduced-form models in fitting cross-sectional bond yield curves


Year:
2004
Publisher:
London, Risk
Note:
RISK, 17, November 2004
Laboratories:




 Record created 2013-08-13, last modified 2018-03-17

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