# Marginal Default Probability

From Open Risk Manual

## Definition

The term **Marginal Default Probability** is used in the context of multi-period Credit Risk analysis to denote the likelihood that a Legal Entity is observed to experience a Credit Event during a defined period of time (hence conditional on not having defaulted prior to that period).

The marginal default probability is identical in meaning with the Hazard Rate.

- In terms of the Incremental Default Probability we have where is the incremental default probability during period .

## Issues and Challenges

- It is important to distinguish the marginal default probability from the Incremental Default Probability which measures the observed default rate during a given period
*without conditioning*on no default prior to the current period.