Hazard processes and martingale hazard processes

DOI10.1111/J.1467-9965.2010.00471.XzbMATH Open1279.60045arXiv0807.4958OpenAlexW1495770962MaRDI QIDQ4906525FDOQ4906525

Authors: Delia Coculescu, A. Nikeghbali 

Publication date: 28 February 2013

Published in: Mathematical Finance (Search for Journal in Brave)

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.

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

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zbMATH Keywords

credit risk modelsrandom timeshazard processenlargements of filtrationshonest timespseudo-stopping timesdefault modelingimmersed filtrations

Mathematics Subject Classification ID

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

Cites Work

• Hazard rate for credit risk and hedging defaultable contingent claims
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• Semi-martingales et grossissement d'une filtration
• Grossissements de filtrations: exemples et applications. Séminaire de Calcul Stochastique 1982/83, Université Paris VI
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• Title not available (Why is that?)
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Cited In (14)

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

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