Credit default prediction and parabolic potential theory

Matteo L. Bedini and Michael Hinz

Statistics & Probability Letters, 2017, vol. 124, issue C, 121-125

Abstract: We consider an approach to credit risk in which the information about the time of bankruptcy is modelled using a Brownian bridge that starts at zero and is conditioned to equal zero when the default occurs. This raises the question whether the default can be foreseen by observing the evolution of the bridge process. Unlike in most standard models for credit risk, we allow the distribution of the default time to be singular. Using a well known fact from parabolic potential theory, we provide a sufficient condition for its predictability.

Keywords: Default time; Predictable stopping time; Brownian bridge on random intervals; Riesz capacity; Hausdorff dimension (search for similar items in EconPapers)
Date: 2017
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Citations: View citations in EconPapers (1)

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DOI: 10.1016/j.spl.2017.01.009

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