Modeling Default Dependence with Threshold Models

We investigate the problem of modeling defaults of dependent credits.In the framework of the class of structural default models we studythreshold models where for each credit the underling ability-to-payprocess is a transformation of a Wiener processes. We propose a modelfor dependent defaults based on correlated Wiener processes whosetime scales are suitably transformed in order to calibrate the model togiven marginal default distributions for each underlying credit. At thesame time the model allows for a straightforward analytic calibrationto dependency information in the form of joint default probabilities.