PPT Slide
? [(1 – q) ? par value + q ? recovery]
where q = Q(t* < T) risk neutral probability of default prior to maturity,
present value factor is the price of riskfree zero-coupon bond.
* The time of default t* is assumed to follow a stochastic process
governed by its own distribution (parameterized by a hazard rate
* The risk-neutral default probability (market-based) can be obtained
as a function of the two discount factors (credit spread).