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Intensity process and compensator: A new filtration expansion approach and the Jeulin--Yor theorem

Listed author(s):
  • Xin Guo
  • Yan Zeng
Registered author(s):

    Let $(X_t)_{t\ge0}$ be a continuous-time, time-homogeneous strong Markov process with possible jumps and let $\tau$ be its first hitting time of a Borel subset of the state space. Suppose $X$ is sampled at random times and suppose also that $X$ has not hit the Borel set by time $t$. What is the intensity process of $\tau$ based on this information? This question from credit risk encompasses basic mathematical problems concerning the existence of an intensity process and filtration expansions, as well as some conceptual issues for credit risk. By revisiting and extending the famous Jeulin--Yor [Lecture Notes in Math. 649 (1978) 78--97] result regarding compensators under a general filtration expansion framework, a novel computation methodology for the intensity process of a stopping time is proposed. En route, an analogous characterization result for martingales of Jacod and Skorohod [Lecture Notes in Math. 1583 (1994) 21--35] under local jumping filtration is derived.

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    Paper provided by in its series Papers with number 0801.3191.

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    Date of creation: Jan 2008
    Publication status: Published in Annals of Applied Probability 2008, Vol. 18, No. 1, 120-142
    Handle: RePEc:arx:papers:0801.3191
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    1. Peter Imkeller, 2003. "Malliavin's Calculus in Insider Models: Additional Utility and Free Lunches," Mathematical Finance, Wiley Blackwell, vol. 13(1), pages 153-169.
    2. Xin Guo & Robert A. Jarrow & Yan Zeng, 2009. "Modeling The Recovery Rate In A Reduced Form Model," Mathematical Finance, Wiley Blackwell, vol. 19(1), pages 73-97.
    3. Xin Guo & Robert A. Jarrow & Yan Zeng, 2009. "Credit Risk Models with Incomplete Information," Mathematics of Operations Research, INFORMS, vol. 34(2), pages 320-332, May.
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