Two models of default risk are prominent in the financial literature: Merton's structural model and Altman's reduced-form model. The former has the benefit of being responsive, since the probabilities of default can continually be updated with the evolution of firms' asset values. Its main flaw...

An important research question examined in the credit risk literature focuses on the proportion of corporate yield spreads attributed to default risk. This topic is reexamined in the light of the different issues associated with the computation of transition and default probabilities obtained...