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Default Ambiguity

Fadina, Tolulope and Schmidt, Thorsten (2019) 'Default Ambiguity.' Risks, 7 (2). ISSN 2227-9091

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Abstract

This paper discusses ambiguity in the context of single-name credit risk. We focus on uncertainty in the default intensity but also discuss uncertainty in the recovery in a fractional recovery of the market value. This approach is a first step towards integrating uncertainty in credit-risky term structure models and can profit from its simplicity. We derive drift conditions in a Heath–Jarrow–Morton forward rate setting in the case of ambiguous default intensity in combination with zero recovery, and in the case of ambiguous fractional recovery of the market value.

Item Type: Article
Uncontrolled Keywords: model ambiguity; default time; credit risk; no-arbitrage; reduced-form HJM models; recovery process
Divisions: Faculty of Science and Health > Mathematical Sciences, Department of
Depositing User: Elements
Date Deposited: 12 Jan 2021 14:56
Last Modified: 12 Jan 2021 15:15
URI: http://repository.essex.ac.uk/id/eprint/28244

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