Abstract
Rating based models of credit risk have evolved as an industry standard and ratings of a company or product will remain one of the most important variables when it comes to modeling and measurement of credit risk. This chapter concentrates only on a number of academic and industry models that have been suggested in the literature. One of the models is reduced form model that is developed to derive credit spreads using historical default rates and a recovery rate estimate to derive credit. The framework of reduced-form models is capable of reducing the technical difficulties of modeling defaultable claims to modeling the term structure of non-defaultable bonds and related derivatives. Another model is intensity-based model that is developed for the valuation of risky debt.
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