Hazard Rate
Corporate Credit Analysis glossary · Credit Metrics & Debt Schedule Modeling
Definition
The instantaneous default intensity λ in a default-intensity model. Under a constant hazard, survival probability over time t equals e^(-lambdat) and PD over the horizon equals 1 - e^(-lambdat).
Hazard Rate in plain English
The hazard rate is a way of describing how likely a company is to suddenly default at any given instant, kind of like a constantly-ticking risk meter, written as the Greek letter λ (lambda). If that risk stays constant, the chance the company is still alive (hasn't defaulted) after time t is e^-λ t, which shrinks as time passes, and the chance it HAS defaulted by then is 1 - e^-λ t. It's like a lightbulb with a fixed chance of burning out each moment: the longer it runs, the smaller the odds it's still glowing. A bigger λ means a riskier borrower whose survival odds fade faster.
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