Jarrow-Lando Model

The Jarrow-Lando Model is a financial tool used to assess the risk of mortgage or bond default by considering how economic conditions influence the likelihood of borrowers failing to meet their payments. It links default probabilities to macroeconomic factors, such as unemployment or economic downturns, allowing lenders and investors to better estimate potential losses. Essentially, it provides a systematic way to predict how economic shifts impact borrower behavior, helping financial institutions manage risk and make informed lending or investment decisions.