Credit Risk with asymmetric information on the default threshold
AbstractWe study the impact of asymmetric information in a general credit model where the default is triggered when a fundamental diff usion process of the firm passes below a random threshold. Inspired by some recent technical default events during the fi nancial crisis, we consider the role of the firm's managers who choose the level of the default threshold and have complete information. However, other investors on the market only have partial observations either on the process or on the threshold. We specify the accessible information for di fferent types of investors. Besides the framework of progressive enlargement of fi ltrations usually adopted in the credit risk modelling, we also combine the results on initial enlargement of filtrations to deal with the uncertainty on the default threshold. We consider several types of investors who have di fferent information levels and we compute the default probabilities in each case. Numerical illustrations show that the insiders who have extra information on the default threshold obtain better estimations of the default probability compared to the standard market investors.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by HAL in its series Post-Print with number hal-00663136.
Date of creation: 2012
Date of revision:
Publication status: Published, Stochastics An International Journal of Probability and Stochastic Processes, 2012, DOI:10.1080/17442508.2011.575944
Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00663136
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/
credit risk; insider; enlargement of filtration;
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- R. J. Elliott & M. Jeanblanc & M. Yor, 2000. "On Models of Default Risk," Mathematical Finance, Wiley Blackwell, vol. 10(2), pages 179-195.
- Merton, Robert C, 1974.
"On the Pricing of Corporate Debt: The Risk Structure of Interest Rates,"
Journal of Finance,
American Finance Association, vol. 29(2), pages 449-70, May.
- Merton, Robert C., 1973. "On the pricing of corporate debt: the risk structure of interest rates," Working papers 684-73., Massachusetts Institute of Technology (MIT), Sloan School of Management.
- Umut Cetin & Robert Jarrow & Philip Protter & Yildiray Yildirim, 2004. "Modeling Credit Risk with Partial Information," Papers math/0407060, arXiv.org.
- Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
- José Corcuera & Peter Imkeller & Arturo Kohatsu-Higa & David Nualart, 2004. "Additional utility of insiders with imperfect dynamical information," Finance and Stochastics, Springer, vol. 8(3), pages 437-450, 08.
- Monique Jeanblanc & Stoyan Valchev, 2005. "Partial Information And Hazard Process," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 8(06), pages 807-838.
- Giesecke, Kay, 2006. "Default and information," Journal of Economic Dynamics and Control, Elsevier, vol. 30(11), pages 2281-2303, November.
- Jeanblanc, Monique & Geman, Hélyette & Coculescu, Délia, 2006. "Valuation of default sensitive claims under imperfect information," Economics Papers from University Paris Dauphine 123456789/2191, Paris Dauphine University.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).
If references are entirely missing, you can add them using this form.