Cetin, Umut 
ORCID: 0000-0001-8905-853X, Jarrow, R., Protter, P. and Yildirim, Y.
(2004)
Modeling credit risk with partial information.
Annals of Applied Probability, 14 (3).
pp. 1167-1178.
ISSN 1050-5164
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Abstract
This paper provides an alternative approach to Duffie and Lando [Econometrica 69 (2001) 633–664] for obtaining a reduced form credit risk model from a structural model. Duffie and Lando obtain a reduced form model by constructing an economy where the market sees the manager’s information set plus noise. The noise makes default a surprise to the market. In contrast, we obtain a reduced form model by constructing an economy where the market sees a reduction of the manager’s information set. The reduced information makes default a surprise to the market. We provide an explicit formula for the default intensity based on an Azéma martingale, and we use excursion theory of Brownian motions to price risky debt.
| Item Type: | Article |
|---|---|
| Official URL: | http://projecteuclid.org/DPubS?service=UI&version=... |
| Additional Information: | © 2007 Institute of Mathematical Statistics |
| Divisions: | Statistics |
| Subjects: | H Social Sciences > HG Finance H Social Sciences > HA Statistics |
| Date Deposited: | 02 Nov 2007 |
| Last Modified: | 13 Sep 2024 21:50 |
| URI: | http://eprints.lse.ac.uk/id/eprint/2840 |
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