Reduced form credit risk models provide a versatile platform to model credit risks and to quantify the interplay between the stochastic dimension of default probabilities and credit spread levels. This article gives a brief introduction to the required technical foundations and discusses the approach to examine uncertainties regarding default probabilities and credit spreads which has been established by [1]. The intention of this article is to help academic researcher as well as practitioners to understand related research projects, to do new research on this question or to improve credit risk models used in financial institutions.
Mathematics Subject Classification: G12; G13
Keywords: Credit Risk; Reduced Form Credit Risk Models; Variance Premium
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