Department of Mathematical Stochastics, University of Freiburg, Ernst-Zermelo Str.1, 79104 Freiburg im Breisgau, Germany
Freiburg Research Institute of Advanced Studies (FRIAS), 79104 Freiburg im Breisgau, Germany
University of Strasbourg Institute for Advanced Study (USIAS), 67081 Strasbourg, France
Author to whom correspondence should be addressed.
Risks 2019, 7(2), 64; https://doi.org/10.3390/risks7020064
Received: 29 March 2019 / Revised: 17 May 2019 / Accepted: 17 May 2019 / Published: 10 June 2019
(This article belongs to the Special Issue Advances in Credit Risk Modeling and Management)
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. View Full-Text
Keywords: model ambiguity; default time; credit risk; no-arbitrage; reduced-form HJM models; recovery process►▼ Show Figures
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MDPI and ACS Style
Fadina, T.; Schmidt, T. Default Ambiguity. Risks 2019, 7, 64.
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Fadina T, Schmidt T. Default Ambiguity. Risks. 2019; 7(2):64.Chicago/Turabian Style
Fadina, Tolulope; Schmidt, Thorsten. 2019. "Default Ambiguity." Risks 7, no. 2: 64.
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