Partial Information and Default Hazard Process

This paper studies in some examples the role of information in a default-risk framework. In a first-passage model, we assume that investors obtain two types of information about the firm’s unlevered asset value at a discrete sequence of dates. The effects of information on the distributional properties of default time and on the valuation of default-risky bonds are analyzed. The discrete information arrivals induce jump-discontinuities in both the conditional default probability and the default hazard process. In such cases, it is better avoiding the intensity approach for valuation of default-sensitive contingent claims since the hazard processapproach is more efficient.