Abstract: A method executed by a computer under the control of a program includes the steps of storing financial portfolio data in the computer. The financial portfolio data includes data on a loan representing a liability of a specified entity. A horizon date is selected for the loan. A distribution function is then designated to characterize the probability of different market values for the specified entity at the horizon date. A horizon default point threshold is then adjusted at the horizon date until the area bound by the distribution function, the horizon date, and the horizon default point threshold is equal to a horizon date cumulative default rate for the specified entity. A maturity date is also defined for the loan. A final default point threshold is then determined at the maturity date so that an expected default rate from the horizon date to the maturity date is equal to a maturity date cumulative default rate, less the horizon date cumulative default rate.