Structural and Reduced-Form Credit Models

Way to go! Structural models use lots of data points to create a credit model. Many times, this data can be difficult to find (or even impossible to find) since it involves volatility and total debt balances.

Which of the following is a disadvantage of structural models?

Definitely not. That's an advantage of the reduced-form credit model, which uses historical data along with macroeconomic and company-specific data.

No, actually. Structural credit models do actually try to explain why companies default.

The model does not explain the reason for default

The model's data is difficult to find and predict

The model directly captures the business cycle