This book introduces the “strike of default” (SOD) benchmark concept. The author determines the SOD through cross-sectional pricing between the credit market and the option market, considering the same underlying. The idea of the SOD is to combine the implied probability of default from both...

This paper first provides a simple but very general framework for credit portfolio modellingwhich is based on the distinction between systematic and unsystematic risk. Unsystematicor borrower-specific risk vanishes through diversification in a very large, infinitelyfine-grained portfolio. The...