Hazard Rate (Default Intensity) : Different Interpretations
1. Context
In this short video from FRM Part 2 (Credit Risk section), we explore the various interpretations of the hazard rate / default intensity – a construct that we encounter while studying reduced form models of credit risk. We see how it can be interpreted as an instantaneous conditional default probability, as a mean rate of arrival of credit events, as an approximate annual probability of default (unconditional), as reciprocal of average time to default and finally as a zero recovery credit spread. The details of the reading in which this topic appears are given below:
| Area | Credit Risk |
| Reading | Spread Risk and Default Intensity Models |
| Reference | Alan Malz, Chapter 7. Spread Risk and Default Intensity Models In Financial Risk Management: Models, History, and Institutions, (Hoboken, NJ: John Wiley & Sons, 2011). |