Default Model


DEFINITION of 'Default Model'

A type of model used by financial institutions to determine the likelihood of a default on credit obligations by a corporation or sovereign entity. These statistical models often use regression analysis (analyzing changes to certain market variables that are pertinent to a company's financial situation) to identify credit risk.

BREAKING DOWN 'Default Model'

In most cases, when a default model is run, the result is given as the probability of default. However, other types of default models are used to predict a company's exposure-at-default and loss-given-default. These models predominantly are used by credit rating agencies such as Moody's and Standard & Poor's (S&P).

  1. Credit Rating

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  2. Credit Cliff

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  3. Credit Risk

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  4. Default Risk

    The event in which companies or individuals will be unable to ...
  5. Risk

    The chance that an investment's actual return will be different ...
  6. Ratings Service

    A company, such as Moody's or Standard & Poor's, that rates ...
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