Risky Bond Pricing under the Change of Filtration

Joonhee Rhee (Soongsil University) and Yoontae Kim (Hallym University)

This paper focuses on information problem for risk debt pricing. In cases where some information is added or misinterpreted by investors, it directly affects the pricing. This paper investigates the mechanism of effect of some changed information on the pricing. To do this, first we reinvestigate approach of Collin-Dufresne, Goldstein and Gugonnier (CGG, 2004) in the information point of view. Next, we extend this approach to more general case. In particular, we model a default time based on structural framework, not on arbitrary default indicator. As defining a default signalling process, which may be a firm value process, we assume the default occurs endogenously. Next we demonstrate how the structural model is expressed as intensity model or hazard rate model.