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Which of the following statements best describes financial models used in predicting default?
A
Financial models rely on expert judgment to evaluate qualitative and quantitative characteristics of borrowers.
B
Financial models are constructed based on historical data related to loan outcomes and employ statistical techniques to establish relationships between default probability and input variables.
C
Financial models adopt a normative approach rooted in fundamental economic principles and aim to describe the mechanics of the default process.
D
Financial models utilize market data on bonds and credit derivatives to infer a firm's credit risk structure and tend to be more sophisticated, allowing for dynamic analysis and scenario testing.
