We present a stochastic simulation model for estimating forward-looking corporate probability of default and loss given … default. We formulate the model in a discrete time frame, apply capital-budgeting techniques to define the relationships that … identify the default condition, and solve the model by Monte Carlo simulation. First, we present the model; then we show how to …

termination via prepayment or default affects optimal risk-sharing. The broad conclusion of the analysis is that potential …