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The Benefits of Including a Particular Factor in a Model

question 26

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The benefits of including a particular factor in a model must be weighed against the decreased complexity of the model resulting from its inclusion.


Definitions:

Default Risk Exposure

The likelihood that a borrower will be unable to make required payments on their debt obligations.

Investment

The allocation of resources, usually money, with the expectation of generating an income or profit.

Convertible Bonds

Bonds that can be converted into a predetermined number of the issuing company's shares at certain times during the bond's life, usually at the discretion of the bondholder.

Earnings Before Taxes

A company's profitability measure calculated by subtracting all expenses, except taxes, from revenues.

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