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November 1996 Recursive valuation of defaultable securities and the timing of resolution of uncertainty
Darrell Duffie, Mark Schroder, Costis Skiadas
Ann. Appl. Probab. 6(4): 1075-1090 (November 1996). DOI: 10.1214/aoap/1035463324


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.


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Darrell Duffie. Mark Schroder. Costis Skiadas. "Recursive valuation of defaultable securities and the timing of resolution of uncertainty." Ann. Appl. Probab. 6 (4) 1075 - 1090, November 1996.


Published: November 1996
First available in Project Euclid: 24 October 2002

zbMATH: 0868.90008
MathSciNet: MR1422978
Digital Object Identifier: 10.1214/aoap/1035463324

Primary: 60H20 , 90A09

Keywords: Backward stochastic differential equations , credit risk , Default , timing of resolution of uncertainty

Rights: Copyright © 1996 Institute of Mathematical Statistics


Vol.6 • No. 4 • November 1996
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