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Finance and Stochastics

, Volume 16, Issue 3, pp 513–535 | Cite as

Default times, no-arbitrage conditions and changes of probability measures

  • Delia Coculescu
  • Monique Jeanblanc
  • Ashkan Nikeghbali
Article

Abstract

In this paper, we give a financial justification, based on no-arbitrage conditions, of the (H)-hypothesis in default time modeling. We also show how the (H)-hypothesis is affected by an equivalent change of probability measure. The main technique used here is the theory of progressive enlargements of filtrations.

Keywords

Default modeling Credit risk models Random times Enlargements of filtrations Immersed filtrations No-arbitrage conditions Equivalent change of measure 

Mathematics Subject Classification (2010)

60G07 91G40 

JEL Classification

C60 G12 G14 

Notes

Acknowledgements

The authors would like to thank an associate editor for a very careful reading and for many suggestions which helped to improve the paper. We also wish to thank two anonymous referees for very helpful comments.

D. Coculescu was supported by the National Centre of Competence in Research “Financial Valuation and Risk Management” (NCCR FINRISK) and by Credit Suisse. M. Jeanblanc benefited from the support of the “Chaire Risque de Crédit”, Fédération Bancaire Française.

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Copyright information

© Springer-Verlag 2012

Authors and Affiliations

  • Delia Coculescu
    • 1
  • Monique Jeanblanc
    • 2
  • Ashkan Nikeghbali
    • 1
    • 3
  1. 1.Institut für MathematikUniversität ZürichZürichSwitzerland
  2. 2.Département de MathématiquesUniversité d’Evry Val d’Essonne and Institut Europlace de FinanceEvry CedexFrance
  3. 3.Swiss Banking InstituteUniversität ZürichZürichSwitzerland

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