Jarrow Turnbull Model

Dictionary Says

Definition of 'Jarrow Turnbull Model'

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.
Investopedia Says

Investopedia explains 'Jarrow Turnbull Model'

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.

 

Sign Up For Term of the Day!

Try Our Stock Simulator!

Test your trading skills!

Related Definitions

  1. Credit

    1. A contractual ...
  2. Credit Derivative

    Privately held ...
  3. Default Risk

    The event in ...
  4. Heath-Jarrow-Morton Model - HJM Model

    A model that ...
  5. Interest Rate

    The amount ...
  6. Boom

    A period of time ...
  7. Industry

    A classification ...
  8. Prisoner's Dilemma

    A paradox in ...
  9. Price Risk

    The risk of a ...
  10. Illiquid

    The state of a ...

Articles Of Interest

  1. What Is A Corporate Credit Rating?

    Is the bond you're buying investment grade, or just junk? Find out how check the score.
  2. Are Your Stocks Doomed?

    When a company is headed for trouble, the warning signs are usually there. Learn how to spot disaster.
  3. Forces Behind Interest Rates

    Get a deeper understanding of the importance of interest rates and what makes them change.
  4. Interest Rates And Your Bond Investments

    By understanding the factors that influence interest rates, you can learn to anticipate their movement and profit from it.
  5. The Importance Of Your Credit Rating

    A great starting point for learning what a credit score is, how it is calculated and why it is so important.
  6. Advanced Bond Concepts

    Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration.
  7. Should You Invest Your Entire Portfolio In Stocks?

    It is true that stocks outperform bonds and cash in the long run, but that statistic doesn't tell the whole story.
  8. The Uses And Limits Of Volatility

    Check out how the assumptions of theoretical risk models compare to actual market performance.
  9. Risk Tolerance Only Tells Half The Story

    Just because you're willing to accept a risk, doesn't mean you always should.
  10. 5 Tips For Diversifying Your Portfolio

    A diversified portfolio will protect you in a tough market. Get some solid tips here!

comments powered by Disqus
Recommended
Loading, please wait...
Trading Center