The Moody's-KMV EDF Model primarily develops a distribution of what?

The Moody's-KMV Expected Default Frequency (EDF) Model is designed to estimate the likelihood that a borrower will default on its debt over a specified horizon, typically one year. It utilizes a structural model based on the value of the firm's assets relative to its liabilities, incorporating both the volatility of those asset values and the correlation of the firm's returns with market returns.

By focusing on the distribution of default frequencies, the Moody's-KMV model quantifies the risk of default for individual firms or portfolios, helping financial professionals evaluate credit risk. This is particularly important for risk management and financial decision-making processes within institutions, allowing them to price credit more accurately and manage capital more effectively.

While the model certainly relates to credit ratings, it does not directly develop credit ratings but rather provides estimates of the probability of default. Similarly, market conditions and loan amounts can impact default probabilities but are not the direct focus of the EDF model. Thus, the primary output is indeed the distribution of default frequencies, making the answer confident in the context of credit risk assessment.