Valuation of default-sensitive claims under imperfect information |
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Authors: | Delia Coculescu Hélyette Geman Monique Jeanblanc |
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Institution: | 1.Department of Mathematics,ETH,Zürich,Switzerland;2.Birkbeck University of London,London,UK;3.ESSEC Business School,Cergy,France;4.Equipe d’Analyse et Probabilités,Université d’Evry Val d’Essonne,Evry Cedex,France;5.Europlace Institute of Finance,Paris,France |
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Abstract: | We propose a valuation method for financial assets subject to default risk, where investors cannot observe the state variable
triggering the default but observe a correlated price process. The model is sufficiently general to encompass a large class
of structural models and can be seen as a generalization of the model of Duffie and Lando (Econometrica 69:633–664, 2001]). In this setting we prove that the default time is totally inaccessible in the market’s filtration and derive the conditional
default probabilities and the intensity process. Finally, we provide pricing formulas for default-sensitive claims and illustrate
in particular examples the shapes of the credit spreads.
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Keywords: | Imperfect information Default time Hazard process |
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