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Unformatted text preview: Dinan""-to-Default Model Model Default Probabilitv Output Output sa 0.03% ro 0.01% au 0.05% 0.015% zu 0.15% 0.075% sn 0.590 0.35% su 1.0% 0.8% ~ ,."" 1.5% au '.0% '.0% zu 10.Cl% ".0% W 15.tl% 3;.0% 40.ll'II. ;0.0% Reduced Form Models Reduced form models use market prices of debt or spreads to calculate the probability of default. Key differences between structural models:-Default occurs exogenously and not based on a default boundary-Probabilities are risk-neutral You can assume different forms for the probability of default over time.-Constant-A function of time with no random component-Random features with estimated parameters 7...
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This note was uploaded on 09/06/2011 for the course FIN 428 taught by Professor Hood during the Fall '11 term at Iowa State.
- Fall '11