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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.

Suggested Citation

  • Peter Spencer, 2013. "The behavior of the hazard rate in the Gaussian structural default model under asymmetric information," Discussion Papers 13/23, Department of Economics, University of York.
  • Handle: RePEc:yor:yorken:13/23
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    File URL: https://www.york.ac.uk/media/economics/documents/discussionpapers/2013/1323.pdf
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    References listed on IDEAS

    as
    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 351-367, May.
    2. Duffie, Darrell & Lando, David, 2001. "Term Structures of Credit Spreads with Incomplete Accounting Information," Econometrica, Econometric Society, vol. 69(3), pages 633-664, May.
    3. Spencer, Peter, 2014. "The Mills Ratio and the behavior of redeemable bond prices in the Gaussian structural model of corporate default," Finance Research Letters, Elsevier, vol. 11(1), pages 8-15.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Corporate bond pricing; Incomplete information; Deferred filtration; Default intensity; Comparative statics;

    JEL classification:

    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates
    • G13 - Financial Economics - - General Financial Markets - - - Contingent Pricing; Futures Pricing
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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