Ability and Willingness to Pay

From Open Risk Manual

Definition

Ability and Willingness to Pay is a phrase that aims to capture at a very fundamental level the nature of the possible risk factors behind a Credit Event, an entity defaulting (reneging) on any of its legal defined financial commitments

Ability to Pay

Ability to Pay captures in a summary view the availability to the concerned entity of funds (economic means) to fulfill the assumed obligation

Willingness to Pay

Willingness to Pay is a summary view of the mindset of the concerned entity (as an economic agent) versus actually fulfilling their assumed obligations. Unwillingness to pay when there is ability to do so is in some contexts denoted as Strategic Default


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