New Credit Risk Model Reveals Hidden Dangers in Financial Markets
The article discusses how credit risk modeling helps predict the likelihood of borrowers defaulting on loans. It covers how default probabilities, ratings, and recovery are modeled. The main focus is on pricing credit risky instruments and derivatives, like Credit Default Swaps, which measure the credit risk of a borrower. The article also looks at how credit spreads are analyzed through CDS contracts and bonds, and the role of correlation in credit risk modeling.