Jarrow–Turnbull model


The Jarrow–Turnbull model was the first "reduced-form" credit risk model.
It was published in 1995 by Robert A. Jarrow of Kamakura Corporation and Cornell University and Stuart Turnbull, currently at the University of Houston.
The model extends the reduced-form model of Merton to a random interest rates framework.
Reduced-form models are an approach to credit risk modeling that contrasts sharply with the "structural credit models".
Large financial institutions employ default models of both the structural and reduced form types. The Merton structural default probabilities were first offered by KMV LLC in the early 1990s. KMV LLC was acquired by Moody's Investors Service in 2002. Kamakura Corporation, where Robert Jarrow serves as director of research, has offered both structural and reduced form default probabilities on public companies since 2002.