Construction of Martingale Measure in the Hazard Process Model of Credit Risk
Mathematical Finance
2019-08-28 v1
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.
Keywords
Cite
@article{arxiv.1908.09857,
title = {Construction of Martingale Measure in the Hazard Process Model of Credit Risk},
author = {Marek Capiński and Tomasz Zastawniak},
journal= {arXiv preprint arXiv:1908.09857},
year = {2019}
}