CFA Level 2
Fixed Income

Understanding Reduced Form Models in Credit Analysis

Easy Credit Analysis And Valuation Reduced Form Models

A reduced form model is utilized to assess the credit risk associated with a bond issuer. In this framework, the likelihood of default is typically characterized through a probabilistic lens rather than a structural model which relates default to the firm’s asset value dynamics. Within the context of reduced form models, let’s consider the following options regarding their attributes and components:

Hint

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