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    Valuation of default-sensitive claims under imperfect information

    Coculescu, D. and Geman, Hélyette and Jeanblanc, M. (2008) Valuation of default-sensitive claims under imperfect information. Finance and Stochastics 12 (2), pp. 195-218. ISSN 0949-2984.

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    Abstract

    We propose a valuation method for financial assets subject to default risk, where investors cannot observe the state variable triggering the default but observe a correlated price process. The model is sufficiently general to encompass a large class of structural models and can be seen as a generalization of the model of Duffie and Lando (Econometrica 69:633–664, [2001]). In this setting we prove that the default time is totally inaccessible in the market’s filtration and derive the conditional default probabilities and the intensity process. Finally, we provide pricing formulas for default-sensitive claims and illustrate in particular examples the shapes of the credit spreads.

    Metadata

    Item Type: Article
    Keyword(s) / Subject(s): Imperfect information, default time, hazard process
    School: Birkbeck Schools and Departments > School of Business, Economics & Informatics > Economics, Mathematics and Statistics
    Depositing User: Administrator
    Date Deposited: 28 Jan 2011 15:45
    Last Modified: 17 Apr 2013 12:18
    URI: http://eprints.bbk.ac.uk/id/eprint/1949

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