The Corporate Default Probability model in the Barclays Capital POINT platform (POINT CDP)
We describe our second generation default prediction methodology that delivers forward-looking estimates of individual default probabilities of US corporations. Daily updates of these estimates are available through POINT. The POINT CDP model is a proprietary hybrid approach that incorporates the output of an advanced option-based structural model with additional predictive information in a dynamic nonlinear reduced-form hazard rate model. These default probabilities take into account the specific circumstances of the firm, equity market performance, the state of the economy, and certain industry effects. They are constructed to give a dynamic view on a firm’s credit condition as implied by the equity market and other relevant sources of information. The model performs very well over the different phases of the business cycle, with robust performance in a highly diverse universe of firms.