Construction of Martingale Measure in the Hazard Process Model of Credit Risk

Marek Capi\'nski and Tomasz Zastawniak

Papers from arXiv.org

Abstract: In credit risk literature, the existence of an equivalent martingale measure is stipulated as one of the main assumptions in the hazard process model. Here we show by construction the existence of a measure that turns the discounted stock and defaultable bond prices into martingales by identifying a no-arbitrage condition, in as weak a sense as possible, which facilitates such a construction.

Date: 2019-08
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