IDEAS home Printed from https://ideas.repec.org/a/wsi/ijtafx/v18y2015i01ns0219024915500077.html
   My bibliography  Save this article

Role Of Information In Pricing Default-Sensitive Contingent Claims

Author

Listed:
  • MONIQUE JEANBLANC

    (Département de Mathématiques, Université d'Evry Val d'Essonne, rue Jarlan, F-91025 Evry Cedex, France)

  • MARTA LENIEC

    (Department of Mathematics, Uppsala University, Box 480, 75106 Uppsala, Sweden)

Abstract

We consider a financial market with a savings account and a stock S that follows a general diffusion. The default of the company, which issues the stock S, is modeled as a stopping time with respect to the filtration generated by the value of the firm that is not observable by regular investors. We assume that the stock price and the value of the firm are correlated. We study three investors with different information levels trading in the market who aim to price a general default-sensitive contingent claim. We use the density approach and Yor's method to solve the pricing problem. Specifically, we find the sets of equivalent martingale measures in three cases and, when needed, we choose one of them using f-divergence approach.

Suggested Citation

  • Monique Jeanblanc & Marta Leniec, 2015. "Role Of Information In Pricing Default-Sensitive Contingent Claims," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 18(01), pages 1-25.
    • Handle: RePEc:wsi:ijtafx:v:18:y:2015:i:01:n:s0219024915500077
    DOI: 10.1142/S0219024915500077
    as

    Download full text from publisher

    File URL: http://www.worldscientific.com/doi/abs/10.1142/S0219024915500077
    Download Restriction: Access to full text is restricted to subscribers
    File URL: https://libkey.io/10.1142/S0219024915500077?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Axel Grorud & Monique Pontier, 1998. "Insider Trading in a Continuous Time Market Model," International Journal of Theoretical and Applied Finance (IJTAF), World Scientific Publishing Co. Pte. Ltd., vol. 1(03), pages 331-347.
    2. Eckhard Platen, 2006. "A Benchmark Approach To Finance," Mathematical Finance, Wiley Blackwell, vol. 16(1), pages 131-151, January.
    3. Sara Biagini & Marco Frittelli, 2005. "Utility maximization in incomplete markets for unbounded processes," Finance and Stochastics, Springer, vol. 9(4), pages 493-517, October.
    4. El Karoui, Nicole & Jeanblanc, Monique & Jiao, Ying, 2010. "What happens after a default: The conditional density approach," Stochastic Processes and their Applications, Elsevier, vol. 120(7), pages 1011-1032, July.
    5. Bogdan Iftimie & Monique Jeanblanc & Thomas Lim & Hai-Nam Nguyen, 2013. "Optimization problem under change of regime of interest rate," Papers 1305.7309, arXiv.org.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Oliver Janke, 2016. "Utility Maximization and Indifference Value under Risk and Information Constraints for a Market with a Change Point," Papers 1610.08644, arXiv.org.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Ashkan Nikeghbali & Eckhard Platen, 2008. "On honest times in financial modeling," Papers 0808.2892, arXiv.org.
    2. Aksamit, Anna & Choulli, Tahir & Deng, Jun & Jeanblanc, Monique, 2019. "No-arbitrage under additional information for thin semimartingale models," Stochastic Processes and their Applications, Elsevier, vol. 129(9), pages 3080-3115.
    3. Fontana, Claudio, 2018. "The strong predictable representation property in initially enlarged filtrations under the density hypothesis," Stochastic Processes and their Applications, Elsevier, vol. 128(3), pages 1007-1033.
    4. El Karoui, Nicole & Jeanblanc, Monique & Jiao, Ying, 2017. "Dynamics of multivariate default system in random environment," Stochastic Processes and their Applications, Elsevier, vol. 127(12), pages 3943-3965.
    5. Huy N. Chau & Andrea Cosso & Claudio Fontana, 2018. "The value of informational arbitrage," Papers 1804.00442, arXiv.org.
    6. Caroline Hillairet & Ying Jiao, 2015. "Portfolio optimization with insider’s initial information and counterparty risk," Finance and Stochastics, Springer, vol. 19(1), pages 109-134, January.
    7. Anna Aksamit & Tahir Choulli & Jun Deng & Monique Jeanblanc, 2015. "Non-Arbitrage Under Additional Information for Thin Semimartingale Models," Papers 1505.00997, arXiv.org.
    8. Anna Aksamit & Tahir Choulli & Jun Deng & Monique Jeanblanc, 2017. "No-arbitrage up to random horizon for quasi-left-continuous models," Finance and Stochastics, Springer, vol. 21(4), pages 1103-1139, October.
    9. Westray, Nicholas & Zheng, Harry, 2009. "Constrained nonsmooth utility maximization without quadratic inf convolution," Stochastic Processes and their Applications, Elsevier, vol. 119(5), pages 1561-1579, May.
    10. Nicola Bruti-Liberati & Christina Nikitopoulos-Sklibosios & Eckhard Platen & Erik Schlögl, 2009. "Alternative Defaultable Term Structure Models," Asia-Pacific Financial Markets, Springer;Japanese Association of Financial Economics and Engineering, vol. 16(1), pages 1-31, March.
    11. Beatrice Acciaio & Claudio Fontana & Constantinos Kardaras, 2014. "Arbitrage of the first kind and filtration enlargements in semimartingale financial models," Papers 1401.7198, arXiv.org, revised May 2015.
    12. Mark P. Owen & Gordan Žitković, 2009. "Optimal Investment With An Unbounded Random Endowment And Utility‐Based Pricing," Mathematical Finance, Wiley Blackwell, vol. 19(1), pages 129-159, January.
    13. Carole Bernard & Franck Moraux & Ludger R�schendorf & Steven Vanduffel, 2015. "Optimal payoffs under state-dependent preferences," Quantitative Finance, Taylor & Francis Journals, vol. 15(7), pages 1157-1173, July.
    14. Bernardo D'Auria & Jos'e Antonio Salmer'on, 2017. "Optimal portfolios with anticipating information on the stochastic interest rate," Papers 1711.03642, arXiv.org, revised Jul 2024.
    15. Kevin Fergusson & Eckhard Platen, 2006. "On the Distributional Characterization of Daily Log-Returns of a World Stock Index," Applied Mathematical Finance, Taylor & Francis Journals, vol. 13(1), pages 19-38.
    16. Vladimir Cherny & Jan Obłój, 2013. "Portfolio optimisation under non-linear drawdown constraints in a semimartingale financial model," Finance and Stochastics, Springer, vol. 17(4), pages 771-800, October.
    17. Fontana, Claudio & Grbac, Zorana & Jeanblanc, Monique & Li, Qinghua, 2014. "Information, no-arbitrage and completeness for asset price models with a change point," Stochastic Processes and their Applications, Elsevier, vol. 124(9), pages 3009-3030.
    18. Gu, Lingqi & Lin, Yiqing & Yang, Junjian, 2016. "On the dual problem of utility maximization in incomplete markets," Stochastic Processes and their Applications, Elsevier, vol. 126(4), pages 1019-1035.
    19. repec:uts:finphd:40 is not listed on IDEAS
    20. Nicole El Karoui & Monique Jeanblanc & Ying Jiao, 2013. "Density approach in modelling multi-defaults," Working Papers hal-00870492, HAL.
    21. Lijun Bo & Ying Jiao & Xuewei Yang, 2011. "Credit derivatives pricing with default density term structure modelled by L\'evy random fields," Papers 1112.2952, arXiv.org.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wsi:ijtafx:v:18:y:2015:i:01:n:s0219024915500077. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Tai Tone Lim (email available below). General contact details of provider: http://www.worldscinet.com/ijtaf/ijtaf.shtml .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.