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Post-Last Exit Time Process and its Application to Loss-Given-Default Distribution

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  • Masahiko Egami
  • Rusudan Kevkhishvili

Abstract

We study a linear diffusion process after its last exit time from a certain regular point. Rather than treating the process as newly born at the last exit time, we view the whole path and separate the original process before and after the last exit time. This enables us not only to identify the transition semigroup, boundary behavior, entrance law, and reverse of the post-last exit time process, but also to establish a financial model for estimating the loss-given-default distribution of corporate debt (an all-time important open problem).

Suggested Citation

  • Masahiko Egami & Rusudan Kevkhishvili, 2020. "Post-Last Exit Time Process and its Application to Loss-Given-Default Distribution," Papers 2009.00868, arXiv.org, revised Mar 2024.
    • Handle: RePEc:arx:papers:2009.00868
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    References listed on IDEAS

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