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Research Details

Recursive valuation of defaultable securities and the timing of resolution of uncertainty, Annals of Applied Probability

Abstract

We derive the implications of default risk for valuation of securities in an abstract setting in which the fractional default recovery rate and the hazard rate for default may depend on the market value of the instrument itself, or on the market values of other instruments issued by the same entity (which are determined simultaneously). A key technique is the use of backward recursive stochastic integral equations. We characterize the dependence of the market value on the manner of resolution of uncertainty, and in particular give conditions for monotonicity of value with respect to the information filtration.

Type

Article

Author(s)

Darrell Duffie, Mark Schroder, Constantinos Skiadas

Date Published

1996

Citations

Duffie, Darrell, Mark Schroder, and Constantinos Skiadas. 1996. Recursive valuation of defaultable securities and the timing of resolution of uncertainty. Annals of Applied Probability. 6(4): 1075-1090.

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