Abstract
This paper provides sufficient conditions for the time of bankruptcy (of a company or a state) for being a totally inaccessible stopping time and provides the explicit computation of its compensator in a framework where the flow of market information on the default is modelled explicitly with a Brownian bridge between 0 and 0 on a random time interval.
Highlights
One of the most important objects in a mathematical model for credit risk is the time τ at which a certain company bankrupts
Modelling the flow of market information concerning a default time is crucial and in this paper we consider a process, β =, whose natural filtration Fβ describes the flow of information available for market agents about the time at which the default occurs
In Appendix A, we provide the properties of the local time associated with the information process
Summary
One of the most important objects in a mathematical model for credit risk is the time τ (called default time) at which a certain company (or state) bankrupts. By Corollary C.5, we know that there exists a unique integrable predictable increasing process Kw = Ktw, t ≥ 0 which generates, in the sense of Definition C.1, the potential G given by (22) and, for every Fβ -stopping time T, we have that σ (L1,L∞)
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