Default probability model

A default probability model estimates the likelihood that a borrower, such as a company or individual, will fail to meet their debt obligations (default) within a specific period. It analyzes factors like financial health, economic conditions, and credit history to quantify this risk. Essentially, it helps lenders and investors assess how likely it is that a loan or investment might not be repaid, enabling better risk management and decision-making. Think of it as a statistical way to predict the chance of a borrower not honoring their debt commitments.