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

Preview

Text Default_Ambiguity_Fadina_et_al.pdf - Published Version Available under License Creative Commons Attribution. Download (423kB) | Preview

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

Actions (login required)

View Item