Parametrization in the progressively enlarged filtration

Abstract: In this paper, we assume that the filtration

is generated by a

d

-dimensional Brownian motion

W = (W_{1}, c d o t s, W_{d})^{'}

as well as an integer-valued random measure

m u (d u, d y)

. The random variable

t a u

is the default time and

L

is the default loss. Let

m a t h b b G = s c r G_{t}; t g e q 0

be the progressive enlargement of

by

(t a u, L)

, i.e,

is the smallest filtration including

such that

t a u

is a

-stopping time and

L

is

s c r G_{t} a u

-measurable. We parameterize the conditional density process, which allows us to describe the survival process

G

explicitly. We also obtain the explicit

-decomposition of a

martingale and the predictable representation theorem for a

-martingale by all known parameters. Formula parametrization in the enlarged filtration is a useful quality in financial modeling.

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