Credit Analysis Models
Free CFA Level II lesson in Fixed Income. 13 min read, ~1,980 words.
Structural (Merton) model: equity is a call option on firm assets; default occurs when assets fall below debt at maturity. Distance to default measures standard deviations from the default threshold, so higher asset volatility lowers DD and raises PD. Reduced-form model: default is a surprise event with hazard rate. Cumulative...
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What this lesson covers
- Content
- Example 1
- Example 2
- Common Mistakes
- Check Your Understanding
- Exam Shortcuts
Learning objectives
- credit analysis models
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