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# Finance Dictionary - D Terms

# Default Probability (DP)

The likelihood that an obligor or counterparty will encounter credit distress within a given time period. ‘‘Credit distress’’ usually leads to either an omitted delayed payment or distressed exchange which would impair the value to senior unsecured debt holders. Note that this leaves open the possibilities that: (i) Subordinated debt might default without impairing senior debt value, and (ii) Transfers and clearing might continue even with a senior debt impairment. This probability can be either marginal default probability (MDP) or cumulative default probability (CDP). The MDP refers the probability that a borrower will default in any given year. The CDP refers the probability that a borrower will default over a specified multiyear period.