Cumulative Default Probability
From Open Risk Manual
Definition
The term Cumulative Default Probability is used in the context of multi-period Credit Risk analysis to denote the likelihood that a Legal Entity is observed to have experienced a defined Credit Event up to a particular timepoint.
Notation
The cumulative default probability can be considered as the primary representation of the Credit Curve as a set of non-decreasing probabilities .
- In terms of the Incremental Default Probability we have where we denote with the incremental default probability during time
- In terms of the Marginal Default Probability we have where is the marginal default probability during period . The marginal default probability is also denoted the Hazard Rate
- In terms of the Survival Probability we have where is the survival probability up to point