Hazard processes and martingale hazard processes

DOI10.1111/J.1467-9965.2010.00471.XMaRDI QIDQ4906525zbMATH OpenOpenAlexFDO

Authors Delia Coculescu, A. Nikeghbali

Publication date 28 February 2013

Published in Mathematical Finance (Search for Journal in Brave)

Full work available at URL https://arxiv.org/abs/0807.4958

zbMATH Keywords

credit risk modelsdefault modelingenlargements of filtrationshazard processhonest timesimmersed filtrationspseudo-stopping timesrandom times

Mathematics Subject Classification ID

General theory of stochastic processes (60G07) Stopping times; optimal stopping problems; gambling theory (60G40) Martingales with continuous parameter (60G44) Applications of stochastic analysis (to PDEs, etc.) (60H30) Derivative securities (option pricing, hedging, etc.) (91G20) Credit risk (91G40)

Abstract: In this paper, we provide a solution to two problems which have been open in default time modeling in credit risk. We first show that if $au$ is an arbitrary random (default) time such that its Az'ema's supermartingale $Z_t^{a}u=P(au>t|F_t)$ is continuous, then $au$ avoids stopping times. We then disprove a conjecture about the equality between the hazard process and the martingale hazard process, which first appeared in cite{jenbrutk1}, and we show how it should be modified to become a theorem. The pseudo-stopping times, introduced in cite{AshkanYor}, appear as the most general class of random times for which these two processes are equal. We also show that these two processes always differ when $au$ is an honest time.

Recommendations

• Characteristics and constructions of default times
• What happens after a default: the conditional density approach
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Cites work

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• Hazard rate for credit risk and hedging defaultable contingent claims
• scientific article; zbMATH DE number 2130502 (Why is no real title available?)
• scientific article; zbMATH DE number 1210411 (Why is no real title available?)
• scientific article; zbMATH DE number 1396448 (Why is no real title available?)
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Cited in

(17)

• Defaultable game options in a hazard process model
• Martingales in Markov processes applied to risk theory
• Default times, no-arbitrage conditions and changes of probability measures
• Constant maturity treasury convexity correction
• The Formation of Financial Bubbles in Defaultable Markets
• A reading guide for last passage times with financial applications in view
• On absolutely continuous compensators and nonlinear filtering equations in default risk models
• From the decompositions of a stopping time to risk premium decompositions
• Local risk minimization of contingent claims simultaneously exposed to endogenous and exogenous default times
• A risk-sharing framework of bilateral contracts
• Characteristics and constructions of default times
• Bilateral counterparty risk under funding constraints. II: CVA
• Binary funding impacts in derivative valuation
• A default system with overspilling contagion
• On decomposition of the last passage time of diffusions
• Filtering in a hazard rate change-point model with financial and life-insurance applications
• Stopping times in the filtration of a Brownian motion stopped at its last passage time

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