Estimating Probability of Default
Overview
Probability of Default Models
- Homogenous Portfolio Model
- is a model that assumes that the defaults and related measures for all loans in the portfolio are drawn
from a single distribution.
- Heterogenous Portfolio Model
- heterogenous models assume that the defaults for different loans may be drawn from
different distributions, the most common example is when the loans are assigned a loan
grade that indicates its default risk.