This book presents an innovatively original and empirically effective model for predictive credit risk analysis that produces term structures of default probability of bond issuers over a future time horizon. A unique feature of the model is that it uses only data of "market prices at each time" of corporate bonds, with bond attributes combined with those of government bonds. In this manner, the default probabilities are enabled to reflect investors' forward-looking views of individual firms. In fact, the model includes the so-called coupon effect and maturity effect on investors' formation of prices via the correlations of individual bond prices, where the effects are significant in testing with data. The model is then applied to individually pricing or rating corporate bonds with different maturities and coupon rates and to valuing credit-risk derivatives such as credit default swaps. Many examples show its empirical effectiveness for valuing credit-risk products, with data from Japan, the USA and EU countries. In addition, methods have been developed for deriving the rating-class-wise or industry-wise term structure of default probabilities and for forming an effective loan portfolio in banking, composing a bond portfolio in investment and trading credit derivatives in risk management. In addition, an original and empirically effective government bond pricing model is also presented with applications to Japan, the USA and EU countries Government bonds.

The model gives yield curves.