Related papers: Unexpected Default in an Information Based Model
The issue of giving an explicit description of the flow of information concerning the time of bankruptcy of a company (or a state) arriving on the market is tackled by defining a bridge process starting from zero and conditioned to be equal…
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…
We extend the information-based asset-pricing framework by Brody, Hughston \& Macrina to incorporate a stochastic bankruptcy time for the writer of the asset. Our model introduces a non-defaultable cash flow $Z_T$ to be made at time $T$,…
The main purpose of this paper is to extend the information-based asset-pricing framework of Brody-Hughston-Macrina to a more general set-up. We include a wider class of models for market information and in contrast to the original paper,…
In this paper, we study a continuous time structural asset value model for two correlated firms using a two-dimensional Brownian motion. We consider the situation of incomplete information, where the information set available to the market…
We analyze an irreversible investment decision for a project which yields a flow of future operating profits given by a geometric Brownian motion with unknown drift. In contrast to similar optimal stopping problems with incomplete…
We discuss the pricing of defaultable assets in an incomplete information model where the default time is given by a first hitting time of an unobservable process. We show that in a fairly general Markov setting, the indicator function of…
We model continuous-time information flows generated by a number of information sources that switch on and off at random times. By modulating a multi-dimensional L\'evy random bridge over a random point field, our framework relates the…
The model consists of a signal process $X$ which is a general Brownian diffusion process and an observation process $Y$, also a diffusion process, which is supposed to be correlated to the signal process. We suppose that the process $Y$ is…
We build a general model for pricing defaultable claims. In addition to the usual absence of arbitrage assumption, we assume that one defaultable asset (at least) looses value when the default occurs. We prove that under this assumption, in…
In this paper, we introduce an extension of a Brownian bridge with a random length by including uncertainty also in the pinning level of the bridge. The main result of this work is that unlike for deterministic pinning point, the bridge…
We investigate the impact of available information on the estimation of the default probability within a generalized structural model for credit risk. The traditional structural model where default is triggered when the value of the firm's…
This paper develops a continuous-time filtering framework for estimating a hazard rate subject to an unobservable change-point. This framework naturally arises in both financial and insurance applications, where the default intensity of a…
We consider the problem of optimally stopping a Brownian bridge with an unknown pinning time so as to maximise the value of the process upon stopping. Adopting a Bayesian approach, we assume the stopper has a general continuous prior and is…
Mathematically, the execution of an American-style financial derivative is commonly reduced to solving an optimal stopping problem. Breaking the general assumption that the knowledge of the holder is restricted to the price history of the…
This article focuses on the mathematical problem of existence and uniqueness of BSDE with a random terminal time which is a general random variable but not a stopping time, as it has been usually the case in the previous literature of BSDE…
We propose predictive information, that is information between a long past of duration T and the entire infinitely long future of a time series, as a universal order parameter to study phase transitions in physical systems. It can be used,…
We establish explicit socially optimal rules for an irreversible investment deci- sion with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic…
The problem of stopping a Brownian bridge with an unknown pinning point to maximise the expected value at the stopping time is studied. A few general properties, such as continuity and various bounds of the value function, are established.…
The inverse first passage time problem asks whether, for a Brownian motion $B$ and a nonnegative random variable $\zeta$, there exists a time-varying barrier $b$ such that $\mathbb{P}\{B_s>b(s),0\leq s\leq t\}=\mathbb{P}\{\zeta>t\}$. We…