CREDIT RISK ASSESSMENT USING DEFAULT MODELS: A REVIEW

George Jumbe; Ravi Gor

doi:10.47413/vidya.v1i2.78

CREDIT RISK ASSESSMENT USING DEFAULT MODELS: A REVIEW

George Godfrey Jumbe·George Jumbe·Ravi Gor

VIDYA - A JOURNAL OF GUJARAT UNIVERSITYJanuary 12, 2023DOI: 10.47413/vidya.v1i2.78

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Abstract

Credit risk, also known as default risk, is the likelihood of a corporation losing money if a business partner defaults. If the liabilities are not met under the terms of the contract, the firm may default, resulting in the loss of the company. There is no clear way to distinguish between organizations that will default and those that will not prior to default. We can only make probabilistic estimations of the risk of default at best. There are two types of credit risk default models in this regard: structural and reduced form models. Structural models are used to calculate the likelihood of a company defaulting based on its assets and liabilities. If the market worth of a company's assets is less than the debt it owes, it will default. Reduced form models often assume an external cause of default, such as a Poisson jump process, which is driven by a stochastic process. They model default as a random event with no regard for the balance sheet of the company. This paper provides a Review of credit risk default models.

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Jumbe, G., & Gor, R. (2023). CREDIT RISK ASSESSMENT USING DEFAULT MODELS: A REVIEW. VIDYA - A JOURNAL OF GUJARAT UNIVERSITY. https://doi.org/10.47413/vidya.v1i2.78

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CREDIT RISK ASSESSMENT USING DEFAULT MODELS: A REVIEW

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