Published Online: 15 MAY 2010
Copyright © 2010 John Wiley & Sons, Ltd. All rights reserved.
Encyclopedia of Quantitative Finance
How to Cite
Schlögl, E. and Schlögl, L. 2010. Duffie–Singleton Model. Encyclopedia of Quantitative Finance. .
- Published Online: 15 MAY 2010
The Duffie–Singleton model is a reduced-form credit risk model in which instantaneous credit spreads can be identified with a “risk-neutral mean-loss rate due to default.” The model is driven by a set of state variables following a Markov process, and defaultable zero-coupon bond prices are exponentially affine functions of these variables. A key assumption is the modeling of recovery in default as an exogenously given fraction of the market value of the defaultable claim. Unlike other exponentially affine model specifications, the one proposed by Duffie and Singleton is sufficiently flexible to allow default intensities (and thus credit spreads) to be negatively correlated with default-free interest rates. The model is very tractable computationally and lends itself to econometric estimation or, alternatively, to calibration to observed market prices for purposes of relative valuation of credit derivatives.
- credit risk;
- credit derivatives;
- affine models;
- credit spreads;
- default hazard rate;
- reduced-form credit risk models