Default Probability Models

Default Probability Models are tools used to estimate the likelihood that a borrower, such as a company or individual, will fail to meet their debt obligations. These models analyze various factors, including credit history, financial stability, and economic conditions. By using statistical techniques, they predict the risk of default, helping lenders make informed decisions about offering loans or setting interest rates. Essentially, these models serve as a financial assessment tool to gauge the potential risk involved in lending.