Structural Credit Models
From Open Risk Manual
Definition
Structural Credit Models denote a family of corporate Credit Risk models that treat corporate debt and default behaviour in a contingent claim (option theoretic) framework. There is a wide range of variations, including:
- first passage (threshold) models
- Models with incomplete information etc.
In a credit pricing context structural models are alternatives to stochastic intensity (also reduced form) models. In a credit risk measurement context structural models are alternatives to logistic regression models (or generalizations to proportional hazard rate models).
Issues and Challenges
- While structural models offer a compelling narrative in understanding drivers of credit risk, ultimately the question is the Model Accuracy in particular in connection with available data to model the corporate liability structure