Jarrow, Lando, Wang (2007, Paper)

Jarrow, Lando, and Wang (2007) developed a model to better understand and predict credit risk, specifically the chances of a borrower defaulting on debt. Their approach incorporates the idea that a company's likelihood of default can change over time and depends on both observable factors, like financial statements, and unobservable elements, such as management quality. By combining these factors into a dynamic, mathematical framework, their model provides a more accurate assessment of credit risk, which helps investors and lenders price loans and manage financial risk more effectively.