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Information Asymmetry in Pricing of Credit Derivatives

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  • Caroline Hillairet

    (CMAP)

  • Ying Jiao

    (PMA)

Abstract

We study the pricing of credit derivatives with asymmetric information. The managers have complete information on the value process of the firm and on the default threshold, while the investors on the market have only partial observations, especially about the default threshold. Different information structures are distinguished using the framework of enlargement of filtrations. We specify risk neutral probabilities and we evaluate default sensitive contingent claims in these cases.

Suggested Citation

  • Caroline Hillairet & Ying Jiao, 2010. "Information Asymmetry in Pricing of Credit Derivatives," Papers 1002.3256, arXiv.org.
    • Handle: RePEc:arx:papers:1002.3256
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    References listed on IDEAS

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    1. Amendinger, Jürgen, 2000. "Martingale representation theorems for initially enlarged filtrations," Stochastic Processes and their Applications, Elsevier, vol. 89(1), pages 101-116, September.
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    3. Hillairet, Caroline, 2005. "Comparison of insiders' optimal strategies depending on the type of side-information," Stochastic Processes and their Applications, Elsevier, vol. 115(10), pages 1603-1627, October.
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    10. 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.
    11. Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-664, May.
    12. Délia Coculescu, 2006. "Valuation of default sensitive claims under imperfect information," Post-Print halshs-00163334, HAL.
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    Cited by:

    1. Caroline Hillairet & Ying Jiao, 2012. "Credit Risk with asymmetric information on the default threshold," Post-Print hal-00663136, HAL.
    2. Imke Redeker & Ralf Wunderlich, 2019. "Credit risk with asymmetric information and a switching default threshold," Papers 1910.14413, arXiv.org, revised Nov 2019.

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