S. Chandrasekhar Modeling Credit Risk of Financial Instruments : A Case Study

Credit Risk forms on Important Component of any Financial Transaction. When money is lent to a party. The lender has to make sure that the borrower keeps up his commitment both for principle and interest payment. Companies raise money through equity and debt. Debt is raised from banks as well as public in the form of loans, Deposits, Commercial Paper etc. This type of capital raising is for a longer duration say 3 to years. Over this period due to competitive forces acting in the environment, the financial health of the company can change and is extreme conditions the company may default.