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Credit risk modeling with misreporting and incomplete information

Capponi, Agostino and Cvitanić, Jakša (2009) Credit risk modeling with misreporting and incomplete information. International Journal of Theoretical and Applied Finance, 12 (1). pp. 83-112. ISSN 0219-0249. doi:10.1142/S0219024909005129. https://resolver.caltech.edu/CaltechAUTHORS:20090820-142436958

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Abstract

We propose a structural model for the valuation of defaultable securities of a firm which models the effect of deliberate misreporting done by insiders in the firm and unobserved by others. We derive exact formulas for equity and bond prices and approximate expressions for the conditional default probability, recovery rate, and credit spread under the proposed credit risk framework. We propose a novel estimation approach to structural model estimation which accounts for noisy observed asset values. We apply the proposed method to calibrate a simple version of our model to the case of Parmalat and show that the model is able to recover a certain amount of misreporting during the years of accounting irregularities.


Item Type:Article
Related URLs:
URLURL TypeDescription
http://dx.doi.org/10.1142/S0219024909005129DOIArticle
http://www.worldscinet.com/ijtaf/12/1201/S0219024909005129.htmlPublisherArticle
ORCID:
AuthorORCID
Cvitanić, Jakša0000-0001-6651-3552
Additional Information:© 2009 World Scientific Publishing Co. Received 8 April 2008; revised 8 July 2008. Agostino Capponi's research has been supported by a research fellowship granted by the Social and Information Sciences Laboratory at the California Institute of Technology. Jakša Cvitanić's research is supported in part by NSF grants DMS 0403575 and DMS 06-31298 and through the Programme" GUEST" of the National Foundation For Science, Higher Education and Technological Development of the Republic of Croatia. We are solely responsible for any remaining errors, and the opinions, findings and conclusions or suggestions in this article do not necessarily reflect anyone's opinions but the authors'.
Funders:
Funding AgencyGrant Number
Caltech Social and Information Sciences LaboratoryUNSPECIFIED
NSFDMS 04-03575
NSFDMS 06-31298
National Foundation For Science, Higher Education and Technological Development (Croatia)UNSPECIFIED
Subject Keywords:Credit risk; incomplete information; calibration; nonlinear filtering; Parmalat; structural models
Issue or Number:1
DOI:10.1142/S0219024909005129
Record Number:CaltechAUTHORS:20090820-142436958
Persistent URL:https://resolver.caltech.edu/CaltechAUTHORS:20090820-142436958
Usage Policy:No commercial reproduction, distribution, display or performance rights in this work are provided.
ID Code:15193
Collection:CaltechAUTHORS
Deposited By:INVALID USER
Deposited On:26 Aug 2009 17:15
Last Modified:08 Nov 2021 23:17

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