Probability of Default
PD is the probability a name defaults over a horizon — real-world for books, risk-neutral for CDS.
Definition
Probability of Default refers to real-world for books, risk-neutral for CDS. Keep that definition fixed when comparing series, managers, or regimes — renaming the same tape does not create a new signal.
Why it matters
Spreads and default paths reprice risk appetite faster than many equity narratives admit. When real-world for books, risk-neutral for CDS shifts, related hedges, limits, and narratives usually need an explicit update rather than a quiet assumption.
Case
Suppose a desk is positioned for the opposite of what probability of default is saying. If real-world for books, risk-neutral for CDS moves against that book, the first question is not “is the story clever?” but whether size, hedges, and stop logic still match the observation.
How to read it
Separate idiosyncratic names from index beta; watch issuance windows and rating migration. Prefer a short written null hypothesis for Probability of Default: what would falsify the current reading in the next window?
Ask the macro AI about this object
Opens Copilot with Codex + RAG context, or send the object into Alpha Factory intake.