PD Model Processes

The probability of default (PD) model provides the PD term structure based on multi-state Markov (MSM) transformation. Through the cycle (TTC) PD is the output of MSM transformation. The Vasicek model converts TTC PD to point-in-time (PIT) PD. In the Vasicek single-factor model, PDs are estimated based on a single common factor, typically an economic factor. The model assumes that the systematic factor influences the PD of an entity and can be modelled as a function of that factor.

The PD Model Process is defined at the Modelling Set, Portfolio Rule, and Economic Scenario Rule levels. Cyclical Factor Rule is also attached while defining the PD Model Process.