New credit risk models revolutionize bond and CDS pricing accuracy.
The article introduces new credit risk models that use factors to predict a company's survival chances. These models make it easier to price bonds and credit default swaps. They can also predict when multiple companies might default at the same time and handle changing interest rates. By testing these models with real data, researchers showed they can accurately estimate CDS spreads over time. Their method for pricing CDS options was also proven to be efficient.