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This paper presents the study of reduced-form approach and hybrid model for the valuation of credit risk. Credit risk arises whenever a borrower is expecting to use future cash flows to pay a current debt. It is closely tied to the potential return of investment, the most notable being that the yields on bonds correlate strongly to their perceived credit risk. Credit risk embedded in a financial transaction, is the risk that at least one of the parties involved in the transaction will suffer adoi:10.4236/jmf.2015.52012 fatcat:bdjq744nnzamtb62tbemnvlv6e