A Note to Correct Modeling Term Structures of Defaultable Bonds

This paper briefly identifies and corrects an error in Duffie and Singleton (1999). The error to omit a variable casts doubt on the arguments of Duffie and Singleton to constitute Heath-Jarrow-Morton (1992) type term structures on defaultable bonds. The error reveals inconsistency through their model in the sense that Heath, Jarrow, and Morton construct no-arbitrage term structures composed of forward rate dynamics explicitly not depending on the market price of risk with default-free bonds. Recent studies for change methods of measures to constitute alternative fundamental theorems of asset pricing shed some light on their arguments in the Heath-Jarrow-Morton framework