# What is the KMV model?

**KMV model**is based on the structural approach to calculate EDF (credit risk is driven by the firm value process). – The market information contained in the firm's stock price and balance sheet are translated into an implied risk of default.

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Similarly, you may ask, what is KMV?

**KMV** Corporation has created the computer software **KMV** Credit Monitor, which is supposed to be a predictor for the credit rating migration >matrices. This approach is also known as the structural approach of pricing credit risk as it includes the asset-liability structure of a company.

Furthermore, what is distance to default? 2-7. KMV model - **Distance-to-Default**. **Default** happens when the value of company's asset falls below "**default** point" (value of the debt). **Distance-to-Default**. - **distance** between the expected value of the asset and the **default** point.

Correspondingly, what is expected default frequency?

EDF stands for **Expected Default Frequency** and is a measure of the probability that a firm will **default** over a specified period of time (typically one year). “**Default**” is defined as failure to make scheduled principal or interest payments.

What is credit risk Modelling?

**Credit risk modelling** refers to the process of using data **models** to find out two important things. The first is the probability of the borrower defaulting on the loan. Financial institutions rely on **credit risk models** to determine the **credit risk** of potential borrowers.