In this article, I propose a structural credit risk model with lagged information on a firm. Under the simple assumption that information on a firm's asset value is observed with a time lag, I show the model also has the properties of a reduced-form model with a default intensity process. In contrast to some previous studies, where both periodic and noisy accounting reports assumptions are necessary to derive the same result, I argue that lagged information is sufficient to generate a default intensity process. This difference in the assumptions has fundamentally different implications for the time series of credit spreads; under both the noisy accounting and lagged information assumptions, the model-implied credit spreads exhibit periodic patterns, whereas under my model assumptions they do not.
|Original language||English (US)|
|Number of pages||9|
|Journal||Journal of Derivatives|
|State||Published - Dec 2008|
ASJC Scopus subject areas
- Economics and Econometrics