in fixed income there are a lot of places where you see oh, this assume there is no credit risk, like OAS, or immunization, can someone provide a summary on credit risk assumption in those concepts?
anyone?
the reason a lot of models don’t factor in credit risk (default risk) is because it’s really F’ing hard to predict it. Most of the credit risk factored in are just downgrades because that’s more reasonable to predict.
I guess if you’re predicting a DDD rated bond on defaulting that’ll probably be a little easier then trying to factor in a IG Corp Bond default risk.