DEFAULTABLE CLAIMS IN SWITCHING MODELS WITH PARTIAL INFORMATION

Pavel V. Gapeev () and Monique Jeanblanc ()
Additional contact information
Pavel V. Gapeev: Department of Mathematics, London School of Economics, Houghton Street, London WC2A 2AE, UK
Monique Jeanblanc: Univ Evry-Université Paris Saclay, LaMME, 23 Boulevard de France, 91037 Evry Cedex, France

International Journal of Theoretical and Applied Finance (IJTAF), 2019, vol. 22, issue 04, 1-18

Abstract: We study a credit risk model for a financial market in which the local drift rate of the logarithm of the intensity of the default time changes at the times at which certain unobservable external events occur. The risk-neutral dynamics of the default intensity are described by a generalized geometric Brownian motion and the changes of the local drift rate arrive at independent exponential times. We obtain closed form expressions for the rational values of defaultable European-style contingent claims through the filtering estimates of the occurrence of switching times given the filtration generated by the default intensity process.

Keywords: Contingent claims; geometric Brownian motion; random drift rate; switching time; partial information; filtering equations; posterior probabilities; conditional probability density (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
http://www.worldscientific.com/doi/abs/10.1142/S0219024919500067
Access to full text is restricted to subscribers

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:wsi:ijtafx:v:22:y:2019:i:04:n:s0219024919500067

Ordering information: This journal article can be ordered from

DOI: 10.1142/S0219024919500067

Access Statistics for this article

International Journal of Theoretical and Applied Finance (IJTAF) is currently edited by L P Hughston

More articles in International Journal of Theoretical and Applied Finance (IJTAF) from World Scientific Publishing Co. Pte. Ltd.
Bibliographic data for series maintained by Tai Tone Lim ().