# Incremental Default Rate

From Open Risk Manual

## Definition

The term **Incremental Default Rate** is used in the context of multi-period credit risk analysis to denote the empirical (or modelled) default rate observed in a certain portfolio during a defined sub-interval.

The incremental default rate can be considered as the building block of the Cumulative Default Rate. Observing whether an entity is defaulted over a period , the incremental default rate is denoted

## Formula

The incremental default rate during period k, given an initial count of N_{0}, and an incremental default count of N_{t}^{D} is given by

NB: The important difference of this formula compared to the regular Default Rate expression is that the denominator refers to *initial* count of the portfolio / cohort

## See Also

- For the relationship with the Incremental Default Probability, see Probability of Default versus Default Rate