PPT Slide
Write Sk, k = 1, …, n for the sectors, each of which should be
thought of as a subset of the set of obligors.
Each sector is driven by a single underlying factor, which explains
the variability over time in the average total default rate measured
The underlying factor influences the sector through the total average
rate of defaults in that sector, which is modeled as a random variable
xk with mean mk and standard deviation sk.