On absolutely continuous compensators and nonlinear filtering equations in default risk models
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of the default has an absolutely continuous compensator. Given this compensator we then discuss the optional projection of a class of semimartingales onto the filtration generated by the observation process and the default indicator process. Available formulas for the pricing of defaultable assets are analyzed in this setting and some alternative formulas are suggested.
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- Umut Çetin & Robert Jarrow & Philip Protter & Yildiray Yildirim, 2008.
"Modeling Credit Risk With Partial Information,"
World Scientific Book Chapters,in: Financial Derivatives Pricing Selected Works of Robert Jarrow, chapter 23, pages 579-590
World Scientific Publishing Co. Pte. Ltd..
- Umut Cetin & R. Jarrow & P. Protter & Y. Yildirim, 2004. "Modeling credit risk with partial information," LSE Research Online Documents on Economics 2840, London School of Economics and Political Science, LSE Library.
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- Luciano Campi & Umut Çetin, 2007. "Insider trading in an equilibrium model with default: a passage from reduced-form to structural modelling," Finance and Stochastics, Springer, vol. 11(4), pages 591-602, October.
- Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-664, May.
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- repec:dau:papers:123456789/4436 is not listed on IDEAS
- P. Collin-Dufresne & R. Goldstein & J. Hugonnier, 2004. "A General Formula for Valuing Defaultable Securities," Econometrica, Econometric Society, vol. 72(5), pages 1377-1407, 09. Full references (including those not matched with items on IDEAS)
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