This page will demonstrate different ways to compute to implied probability of default from credit spreads. Rather than having vague discussions of credit spread levels, the analysis begins with a base level of debt. Once a base debt issue like a risk free security is evaluated as a benchmark, the risk security is presented. Then, an analysis which uses expected value or risk neutral valuation is used to derive the implied probability of default. A file that illustrates how to compute the implied credit spreads is available for download below.
Excel File with Analysis of How to Compute the Implied Probability of Default Given the Credit Spread
Implied PD from Credit Spreads