Quantora · Credit Desk
Credit Risk Lab
How likely is a company to default - and how much would you lose? Quantora estimates default probability three complementary ways: the Merton structural model from the balance sheet and equity volatility, a reduced-form read straight off the credit spread, and the classic Altman Z-score. Everything computes in your browser with verified math - no data feed required.
1. Merton structural model
Treats equity as a call option on the firm's assets: default happens if asset value falls below debt at horizon.
2. Reduced-form (spread-implied)
Backs a hazard rate and default probability out of a credit spread and recovery assumption.
3. Altman Z-score
A bankruptcy predictor from five balance-sheet ratios (manufacturing form). Enter dollar figures.
The Merton model gives a distance-to-default (how many standard deviations of asset value sit between the firm and its debt) and converts it to a probability. The reduced-form approach ignores the balance sheet and reads the market's own view from the spread: hazard ≈ spread / (1 − recovery). The Altman Z maps five ratios to zones - above ~2.99 is "safe," below ~1.81 is "distress." They disagree on purpose: structural is forward-looking on fundamentals, reduced-form is what the market is pricing, and Z is an accounting snapshot. When all three flash the same color, pay attention. Expected loss = probability of default × loss given default × exposure.