Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on...

Recent literature has pointed out that information asymmetries may be the reason for the poor performance of structural credit risk models to fit corporate bond data. It is well known in fact that these models lead to a strong understatement of the credit spread terms structure, particularly on...

Abstract We design a discrete time arbitrage-free model under incomplete information for application to credit risk models in the spirit of Duffie and Lando (2001). We assume a fundamental value process evolving according to a complete market model and a sequence of imperfect signals conveying...