Cetin, Umut, 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
|
PDF
- Published Version
Download (407Kb) | Preview |
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 |
| Uncontrolled Keywords: | default risk, Azéma martingale, Brownian excursions, default distribution |
| Library of Congress subject classification: | H Social Sciences > HG Finance H Social Sciences > HA Statistics |
| Sets: | Departments > Statistics |
| Rights: | http://www.lse.ac.uk/library/rights/LSERO.htm |
| URL: | http://eprints.lse.ac.uk/2840/ |
Actions (login required)
 |
Record administration - authorised staff only |
