Credit Risk Modeling with Delayed Information

24 Pages Posted: 7 Feb 2013

See all articles by Takanori Adachi

Takanori Adachi

Tokyo Metropolitan University

Ryozo Miura

Hitotsubashi University - Graduate School of International Corporate Strategy

Hidetoshi Nakagawa

Hitotsubashi University Business School

Date Written: August 16, 2012

Abstract

We introduce a notion of market times that are stochastic processes in order to represent information delay in structural credit risk models. The market times are extensions of the time change process introduced by Guo, Jarrow and Zeng in the sense that each component of the market time is not required to be a stopping time. We introduce a class of market times called idempotent market times that contain natural examples including market times driven by Poisson processes. We show that any idempotent market time is hard to be a model of the time change process. We define a filtration modulated by the market time and show that it is an extension of the continuously delayed filtration that is the filtration modulated by the time change process. We show that the conditional expectations given market filtrations have some Markov property in a binomial setting, which is useful for pricing defaultable financial instruments.

Keywords: credit risk, default risk, structural model, stopping time, random time, information delay

JEL Classification: C02, D52, D8

Suggested Citation

Adachi, Takanori and Miura, Ryozo and Nakagawa, Hidetoshi, Credit Risk Modeling with Delayed Information (August 16, 2012). Available at SSRN: https://ssrn.com/abstract=2212637 or http://dx.doi.org/10.2139/ssrn.2212637

Takanori Adachi (Contact Author)

Tokyo Metropolitan University ( email )

1-4-1 Marunouchi, Chiyoda-ku
Tokyo, 100-0005
Japan

Ryozo Miura

Hitotsubashi University - Graduate School of International Corporate Strategy ( email )

2-1-2 Hitotsubashi, Chiyoda-ku
Tokyo 101-0003, Chiyoda-ku 101-8439
Japan

Hidetoshi Nakagawa

Hitotsubashi University Business School ( email )

National Center for Sciences
2-1-2 Hitotsubashi,
Chiyoda-ku,, 1018439
Japan
342123104 (Phone)

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