Credit Risk, Structural vs Intensity Models, and XVA: Merton's Firm-Value Model, Hazard Rates, CDS Bootstrapping, Counterparty Credit Risk (CVA/FVA/MVA), and Wrong-Way Risk

Deep End Era. Engineering with Sankalp · Oct 29, 2026 · 1h 41m

Structural models explain default through firm value and debt; intensity models describe default timing through hazard rates. This episode connects those views with rating migration, CDS calibration, the CDS-bond basis, counterparty exposure, CVA/DVA, the XVA stack, wrong-way risk and desk hedging.

Chapters

00:00:00 Chapter 1: Cold Open — The Two Worlds of Default (Structural vs. Reduced-Form) and the Post-2008 XVA Revolution!

00:04:46 Chapter 2: Robert Merton's (1974) Structural Firm-Value Model — Equity as a Call Option, Risky Debt as a Short Put, and Distance-to-Default!

00:11:39 Chapter…