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Username: LuckyMan Rating:  Asked to: Chaoxiang Lee Date Created: 21 May 2018 |
| Category | 28 |
| Tag | Financial |
| Question | Please give the definition of 'Jarrow Turnbull Model'. |
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Hello LuckyMan, One of the first reduced-form models for pricing credit risk. Developed by Robert Jarrow and Stuart Turnbull, the model utilizes multi-factor and dynamic analysis of interest rates to calculate the probability of default. Reduced-form models are one of two approaches to credit risk modeling, the other being structural. Structural models assume that the modeler - like a company's managers - has complete knowledge of its assets and liabilities, leading to a predictable default time. Reduced-form models assume that the modeler - like the market - has incomplete knowledge about the company's condition, leading to an inaccessible default time. Jarrow concludes that for pricing and hedging, reduced-form models are the preferred methodology. |
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