Default probabilities of a holding company, with complete and partial information

摘要

This paper studies the valuation of credit risk for firms that own several subsidiaries or business lines. We provide simple analytical approximating expressions for probabilities of default, and for equity–debt market values, both in the case when the information is available in continuous time as well as in the case that it is not instantaneously available. The total firm’s asset value being modeled as a sum of lognormal random variables, we use convex upper and lower approximations to infer these analytical approximating expressions. We extend the model to firms financed by multiple stochastic liabilities and conclude by numerical illustrations.