Question: Which are the categories of models, which can be used for Credit Risk estimation?
Answer: The models are divided into three categories: - Structural models - Reduced-form model - Incomplete-information models.
Question: What do you mean by inflation risk for a bond?
Answer: Inflation risk, also known as purchasing-power risk, arises because of the variation in the value of cash-flows from a bond due to inflation. Suppose, as an investor you purchases a five-year bond in which you can realize a coupon rate of 10%, but the rate of inflation is 11% (usually, in emerging country), which causes purchasing-power of the cash-flow to be reduced.
Question: How does inflation risk affects the fixed and floating rate bonds?
Answer: Floating-rate bonds have a lower level of inflation risk than fixed-rate bonds.
Question: What do you mean by bonds true value?
Answer: Bonds true value is indicated by a recent transaction.