| Purdue Computational Finance Program | |
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Modeling Credit Risk with Partial Information
April 3, 2003 |
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Abstract:
This paper provides an alternative approach to Duffie and Lando for obtaining a reduced form credit risk model from a structural model. Duffie and Lando obtain a reduced form model by constructing an economy where the market sees the manager's information set plus noise. The noise makes default a surprise to the market. In contrast, we obtain a reduced form model by constructing an economy where the market sees a reduction of the manager's information set. The reduced information makes default a surprise to the market. We provide an explicit formula for the default intensity based on an Azema martingale, and we use excursion theory of Brownian motions to price risky debt. The talk is based on joint work with Umut Cetin, Robert Jarrow, and Yildiray Yildirim. |
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2003 Purdue University Last Update: Mar 31, 2003 Please send comments and suggestions to the Webmaster. |