This review provides a comprehensive survey of recent quantitative research on the pricing of credit risk. It also explores two types of models commonly used for pricing credit risk—structural models and reduced-form models
This review provides a comprehensive survey of recent quantitative research on
the pricing of credit risk. It also explores two types of models commonly used
for pricing credit risk—structural models and reduced-form models. The
authors review the contract details and pricing of such popular credit
derivatives as credit default swaps, collateralized debt obligations (CDOs), and
basket default swaps. They discuss models for correlated default risk and supply
an example of pricing a CDO using Monte Carlo analysis.