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Structure and Intensity Based Approach in Credit Risk Models: A Literature Review

Author

Listed:
  • Adithi Ramesh

    (Faculty of Management Studies, Dr. M.G.R Educational and Research Institute University, Chennai, Tamil Nadu, India,)

  • C. B Senthil Kumar

    (Department of Commerce, Dr.M.G.R Educational and Research Institute University, Chennai, Tamil Nadu, India.)

Abstract

Credit risk modeling has been a subject of considerable research interest for finance and statistical researchers. The quantification of credit risk by assigning measurable and comparable numbers to the likelihood of default or spread risk is a major frontier in modern finance. In this paper we provide a literature review of credit risk models including both structural and intensity based approaches. Our focus is placed on probability of default and hazard rate of time to default.

Suggested Citation

  • Adithi Ramesh & C. B Senthil Kumar, 2017. "Structure and Intensity Based Approach in Credit Risk Models: A Literature Review," International Journal of Economics and Financial Issues, Econjournals, vol. 7(3), pages 609-612.
    • Handle: RePEc:eco:journ1:2017-03-81
    as

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    References listed on IDEAS

    as
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    2. Sanjiv R. Das & Darrell Duffie & Nikunj Kapadia & Leandro Saita, 2007. "Common Failings: How Corporate Defaults Are Correlated," Journal of Finance, American Finance Association, vol. 62(1), pages 93-117, February.
    3. Merton, Robert C, 1974. "On the Pricing of Corporate Debt: The Risk Structure of Interest Rates," Journal of Finance, American Finance Association, vol. 29(2), pages 449-470, May.
    4. Breeden, Joseph L., 2007. "Modeling data with multiple time dimensions," Computational Statistics & Data Analysis, Elsevier, vol. 51(9), pages 4761-4785, May.
    5. Yongheng Deng & John M. Quigley & Robert Van Order, 2000. "Mortgage Terminations, Heterogeneity and the Exercise of Mortgage Options," Econometrica, Econometric Society, vol. 68(2), pages 275-308, March.
    6. John C. Cox & Jonathan E. Ingersoll Jr. & Stephen A. Ross, 2005. "A Theory Of The Term Structure Of Interest Rates," World Scientific Book Chapters, in: Sudipto Bhattacharya & George M Constantinides (ed.), Theory Of Valuation, chapter 5, pages 129-164, World Scientific Publishing Co. Pte. Ltd..
    7. Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, February.
    8. Robert A. Jarrow & Stuart M. Turnbull, 2008. "Pricing Derivatives on Financial Securities Subject to Credit Risk," World Scientific Book Chapters, in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 17, pages 377-409, World Scientific Publishing Co. Pte. Ltd..
    9. Bradley Efron, 2002. "The two‐way proportional hazards model," Journal of the Royal Statistical Society Series B, Royal Statistical Society, vol. 64(4), pages 899-909, October.
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    More about this item

    Keywords

    Credit Risks; Defaults; Weiner Process; Volatility;
    All these keywords.

    JEL classification:

    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
    • C02 - Mathematical and Quantitative Methods - - General - - - Mathematical Economics
    • C87 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Econometric Software

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