DEFINITION of 'Jarrow Turnbull Model'
One of the first reducedform models for pricing credit risk. Developed by Robert Jarrow and Stuart Turnbull, the model utilizes multifactor and dynamic analysis of interest rates to calculate the probability of default. Reducedform models are one of two approaches to credit risk modeling, the other being structural.
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BREAKING DOWN '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. Reducedform 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, reducedform models are the preferred methodology.
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