The Jarrow–Turnbull model is a widely used "reduced-form" credit risk model. It was published in 1995 by Robert A. Jarrow and Stuart Turnbull.[1] Under the model, which returns the corporate's probability of default, bankruptcy is modeled as a statistical process. The model extends the reduced-form model of Merton (1976) [2] to a random interest rates framework.
Reduced-form models are an approach to credit risk modeling that contrasts sharply with "structural credit models", the best known of which is the Merton model of 1974. Reduced-form models focus on modeling the probability of default as a statistical process, whereas structural-models inhere a microeconomic model of the firm's capital structure, deriving the (single-period) probability of default from the random variation in the (unobservable) value of the firm's assets.[3]
Large financial institutions employ default models of both the structural and reduced-form types. The Merton structural default probabilities were first offered by KMV LLC in the early 1990s. KMV LLC was acquired by Moody's Investors Service in 2002.
^Robert A. Jarrow and Stuart Turnbull, "Pricing Derivatives on Financial Securities Subject to Credit Risk" Journal of Finance, vol. 50, March, 1995
^Robert Merton, “Option Pricing When Underlying Stock Returns are Discontinuous” Journal of Financial Economics, 3, January–March, 1976, pp. 125–44.
^Robert C. Merton “On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,” Journal of Finance 29, 1974, pp. 449–470
Further readingedit
Duffie, Darrell; Kenneth J. Singleton (2003). Credit Risk: Pricing, Measurement, and Management. Princeton University Press.
Jarrow, Robert, Donald R. van Deventer, Li Li, and Mark Mesler (2006). Kamakura Risk Information Services Technical Guide, Version 4.1. Kamakura Corporation.{{cite book}}: CS1 maint: multiple names: authors list (link)
Lando, David (2004). Credit Risk Modeling: Theory and Applications. Princeton University Press. ISBN978-0-691-08929-4.
van Deventer; Donald R.; Kenji Imai; Mark Mesler (2004). Advanced Financial Risk Management: Tools & Techniques for Integrated Credit Risk and Interest Rate Risk Modeling. John Wiley. ISBN978-0-470-82126-8.
December 01, 2023
jarrow, turnbull, model, widely, used, reduced, form, credit, risk, model, published, 1995, robert, jarrow, stuart, turnbull, under, model, which, returns, corporate, probability, default, bankruptcy, modeled, statistical, process, model, extends, reduced, for. The Jarrow Turnbull model is a widely used reduced form credit risk model It was published in 1995 by Robert A Jarrow and Stuart Turnbull 1 Under the model which returns the corporate s probability of default bankruptcy is modeled as a statistical process The model extends the reduced form model of Merton 1976 2 to a random interest rates framework Reduced form models are an approach to credit risk modeling that contrasts sharply with structural credit models the best known of which is the Merton model of 1974 Reduced form models focus on modeling the probability of default as a statistical process whereas structural models inhere a microeconomic model of the firm s capital structure deriving the single period probability of default from the random variation in the unobservable value of the firm s assets 3 Large financial institutions employ default models of both the structural and reduced form types The Merton structural default probabilities were first offered by KMV LLC in the early 1990s KMV LLC was acquired by Moody s Investors Service in 2002 See also editCredit default swap Credit derivatives Credit risk Merton model Probability of defaultReferences edit Robert A Jarrow and Stuart Turnbull Pricing Derivatives on Financial Securities Subject to Credit Risk Journal of Finance vol 50 March 1995 Robert Merton Option Pricing When Underlying Stock Returns are Discontinuous Journal of Financial Economics 3 January March 1976 pp 125 44 Robert C Merton On the Pricing of Corporate Debt The Risk Structure of Interest Rates Journal of Finance 29 1974 pp 449 470Further reading editDuffie Darrell Kenneth J Singleton 2003 Credit Risk Pricing Measurement and Management Princeton University Press Jarrow Robert Donald R van Deventer Li Li and Mark Mesler 2006 Kamakura Risk Information Services Technical Guide Version 4 1 Kamakura Corporation a href Template Cite book html title Template Cite book cite book a CS1 maint multiple names authors list link Lando David 2004 Credit Risk Modeling Theory and Applications Princeton University Press ISBN 978 0 691 08929 4 van Deventer Donald R Kenji Imai Mark Mesler 2004 Advanced Financial Risk Management Tools amp Techniques for Integrated Credit Risk and Interest Rate Risk Modeling John Wiley ISBN 978 0 470 82126 8 Retrieved from https en wikipedia org w index php title Jarrow Turnbull model amp oldid 1160075589, wikipedia, wiki, book, books, library,
