Default ambiguity

Tolulope Fadina, Thorsten Schmidt

Research output: Contribution to journalArticlepeer-review


This paper discusses ambiguity in the context of single-name credit risk. We focus on uncertainty in the default intensity but also discuss uncertainty in the recovery in a fractional recovery of the market value. This approach is a first step towards integrating uncertainty in credit-risky term structure models and can profit from its simplicity. We derive drift conditions in a Heath–Jarrow–Morton forward rate setting in the case of ambiguous default intensity in combination with zero recovery, and in the case of ambiguous fractional recovery of the market value.

Original languageEnglish (US)
Article number64
Issue number2
StatePublished - Jun 2019
Externally publishedYes


  • Credit risk
  • Default time
  • Model ambiguity
  • No-arbitrage
  • Recovery process
  • Reduced-form HJM models

ASJC Scopus subject areas

  • Accounting
  • Economics, Econometrics and Finance (miscellaneous)
  • Strategy and Management


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