Credit Risk Models: Default Mode vs Migration Mode
1. Context
In this short video from FRM Part II curriculum, we take a comparative look at two modes credit risk models fall in – the default mode and the migration (also known as transition or full-valuation mode. The key difference between the two is the nature of risks captured and by implication, the number of possible states the model assumes a credit or a borrower will be in at the end of the horizon. The details of the reading in which this topic appears are given below:
| Area | Credit Risk |
| Reading | Classifications and Key Concepts of Credit Risk |
| Reference | Giacomo De Laurentis, Renato Maino, and Luca Molteni, Chapter 2. Classifications and Key Concepts of Credit Risk In Developing, Validating and Using Internal Ratings, (West Sussex, United Kingdom: John Wiley & Sons, 2010). |