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Defaultable Claims In Switching Models With Partial Information

Author

Listed:
  • PAVEL V. GAPEEV

    (Department of Mathematics, London School of Economics, Houghton Street, London WC2A 2AE, UK)

  • MONIQUE JEANBLANC

    (Univ Evry-Université Paris Saclay, LaMME, 23 Boulevard de France, 91037 Evry Cedex, France)

Abstract

We study a credit risk model for a financial market in which the local drift rate of the logarithm of the intensity of the default time changes at the times at which certain unobservable external events occur. The risk-neutral dynamics of the default intensity are described by a generalized geometric Brownian motion and the changes of the local drift rate arrive at independent exponential times. We obtain closed form expressions for the rational values of defaultable European-style contingent claims through the filtering estimates of the occurrence of switching times given the filtration generated by the default intensity process.

Suggested Citation

  • Pavel V. Gapeev & Monique Jeanblanc, 2019. "Defaultable Claims In Switching Models With Partial Information," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 22(04), pages 1-18, June.
    • Handle: RePEc:wsi:ijtafx:v:22:y:2019:i:04:n:s0219024919500067
    DOI: 10.1142/S0219024919500067
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    References listed on IDEAS

    as
    1. Pavel V. Gapeev & Monique Jeanblanc, 2009. "Pricing Of Contingent Claims In A Two-Dimensional Model With Random Dividends," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 12(08), pages 1091-1104.
    2. Dorje C. Brody & Lane P. Hughston & Andrea Macrina, 2008. "Information-Based Asset Pricing," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 11(01), pages 107-142.
    3. Gapeev, P.V. & Peskir, G., 2006. "The Wiener disorder problem with finite horizon," Stochastic Processes and their Applications, Elsevier, vol. 116(12), pages 1770-1791, December.
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    Cited by:

    1. Gapeev, Pavel V. & Jeanblanc, Monique, 2021. "First-to-default and second-to-default options in models with various information flows," LSE Research Online Documents on Economics 110750, London School of Economics and Political Science, LSE Library.
    2. Zaevski, Tsvetelin S. & Kounchev, Ognyan & Savov, Mladen, 2019. "Two frameworks for pricing defaultable derivatives," Chaos, Solitons & Fractals, Elsevier, vol. 123(C), pages 309-319.
    3. Pavel V. Gapeev & Monique Jeanblanc, 2020. "Credit Default Swaps In Two-Dimensional Models With Various Informations Flows," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 23(02), pages 1-28, March.

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