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The behavior of the hazard rate in the Gaussian structural default model under asymmetric information

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  • Peter Spencer

Abstract

This paper shows that the standard and deferred filtration structural models of corporate default are isomorphic, allowing the insights of the standard full information setting to be carried over to the more complex case of asymmetric information. It shows that the accounting lag, which provides a general indicator of uncertainty and opacity in the deferred filtration model, plays a role analogous to that of forward maturity in the standard model. The comparative static properties of the standard model carry over mutatis mutandis and can also be used to sign the effect of signals upon the effective accounting lag and drift parameters.

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Bibliographic Info

Paper provided by Department of Economics, University of York in its series Discussion Papers with number 13/23.

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Date of creation: Aug 2013
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Handle: RePEc:yor:yorken:13/23

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Postal: Department of Economics and Related Studies, University of York, York, YO10 5DD, United Kingdom
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Web page: http://www.york.ac.uk/economics/
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Keywords: Corporate bond pricing; Incomplete information; Deferred filtration; Default intensity; Comparative statics;

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  1. Black, Fischer & Cox, John C, 1976. "Valuing Corporate Securities: Some Effects of Bond Indenture Provisions," Journal of Finance, American Finance Association, vol. 31(2), pages 351-67, May.
  2. Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-64, May.
  3. Martin Baxter, 2007. "Lévy Simple Structural Models," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 10(04), pages 593-606.
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