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Valuation of default sensitive claims under imperfect information

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Delia.pdf (845.6Kb)
Date
2006
Dewey
Economie financière
Sujet
hybrid models; default sensitive claims
JEL code
C51; G11; G12
Conference name
Stanford Financial Mathematics Seminar
Conference date
04-2006
Conference city
Paolo Alto
Conference country
États-Unis
URI
https://basepub.dauphine.fr/handle/123456789/2191
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  • DRM : Publications
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Author
Jeanblanc, Monique
Geman, Hélyette
Coculescu, Délia
Type
Communication / Conférence
Item number of pages
35
Abstract (EN)
We propose an evaluation method for financial assets subject to default risk, when investors face imperfect information about the state variable triggering the default. The model we propose generalizes the one by Duffie and Lando (2001) in the following way:(i)it incorporates informational noise in continuous time, (ii) it respects the (H) hypothesis, (iii) it precludes arbitrage from insiders. The model is sufficiently general to encompass a large class of structural models. In this setting we show that the default time is totally inaccessible in the market’s filtration and derive the martingale hazard process. Finally, we provide pricing formulas for default-sensitive claims and illustrate with particular examples the shapes of the credit spreads and the conditional default probabilities. An important feature of the conditional default probabilities is they are non Markovian. This might shed some light on observed phenomena such as the ”rating momentum”.

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