Robert A. Jarrow and Philip Protter Volume 2, Number 2, Second Quarter 2004 This paper compares structural versus reduced form credit risk models from an information based perspective. We show that the difference between these two models types can be characterized in terms of the information assumed known by the modeler. Structural models assure that… Read More
Robert Jarrow
Estimating Default Probabilities Implicit in Equity Prices
Tibor Janosi, Robert Jarrow, and Yildiray Yildirim This paper uses a reduced form credit risk model to estimate default probabilities implicit in equity prices. For a cross-section of firms, a time-series regression of monthly equity returns is estimated. We show that it is feasible to infer the firm's probability of default implicit in equity returns… Read More