Investing in Credit: How Good is Your Information

Jan 1, 2004

Most investment decisions are based on incomplete information.  This disquieting fact, whose origins range from the complex nature of our economic environment to sneaky corporate practices, flies in the face of the assumptions that underlie many credit models.  Nevertheless, a framework to model credit in the context of incomplete information is of surprisingly recent vintage - see for example, Duffie & Lando (2001), Giesecke (2001) and Cetin et al (2002).  There are two main quantitative approaches to analyzing credit risk. first