Due to the recent financial crisis and European debt crisis, credit risk evaluation has become an increasingly important issue for financial institutions. Reliable credit scoring models are crucial for commercial banks to evaluate the financial performance of clients and have been widely studied...

Default correlation is a critical concept in risk management for fixed income investment, bank management, and insurance industry, working capital management, among many. We extend the Leland-Toft term structure model into a two-firm environment and predict the default correlation between two...