Partial Information, Default Hazard Process, and Default-Risky Bonds

by Monique Jeanblanc of the Université d'Evry, and
Stoyan Valchev of ISB Zurich

November 4, 2004

Abstract: This paper studies in some examples the role of information in a default-risk framework. In a first-passage model, we assume that investors obtain two types of information about the firm's unlevered asset value at a discrete sequence of dates. The effects of information on the distributional properties of default time and on the valuation of default-risky bonds are analyzed. The discrete information arrivals induce jump-discontinuities in both the conditional default probability and the default hazard process. In such cases, it is better avoiding the intensity approach for valuation of default-sensitive contingent claims since the hazard process approach is more efficient.

Keywords: credit risk, information, hazard process of default time, default probability.

Published in: International Journal of Theoretical and Applied Finance, Vol. 8, No. 6, (September 2005), pp. 807-838.

Books Referenced in this Paper:  (what is this?)

Download paper (537K PDF) 32 pages

[Home] [Credit Modeling Papers]

[ Home ] [ Up ]

Please contact me with problems or suggestions.
Copyright © 2000-2008 DefaultRisk.com
Last modified: November 19, 2008