Cumulative Default Rate

Definition

The term Cumulative 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 as it cumulates (aggregates) up to a final point in time.

The cumulative default rate up to time period k is denoted $\mbox{CDR}_{k}$ and can be considered as the integral (sum) of the Incremental Default Rate

Formula

The cumulative default rate during period k, given an initial count of N₀ and incremental default rate N_t^D

$\mbox{CDR}_{t} = \sum_{k=1}^{t} \frac{N^{D}_k}{N_0} = \sum_{k=1}^{t} \mbox{IDR}_{k}$

See Also

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

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