The Econometric SocietyEdited by: Guido W. Imbens • Print ISSN: 0012-9682 • Online ISSN: 1468-0262
Econometrica: Sep, 2004, Volume 72, Issue 5
https://doi.org/10.1111/j.1468-0262.2004.00538.x
p. 1377-1407
P. Collin‐Dufresne, R. Goldstein, J. Hugonnier
Previous research has shown that under a suitable no‐jump condition, the price of a defaultable security is equal to its risk‐neutral expected discounted cash flows if a modified discount rate is introduced to account for the possibility of default. Below, we generalize this result by demonstrating that one can always value defaultable claims using expected risk‐adjusted discounting provided that the expectation is taken under a slightly modified probability measure. This new probability measure puts zero probability on paths where default occurs prior to the maturity, and is thus only absolutely continuous with respect to the risk‐neutral probability measure. After establishing the general result and discussing its relation with the existing literature, we investigate several examples for which the no‐jump condition fails. Each example illustrates the power of our general formula by providing simple analytic solutions for the prices of defaultable securities.
March 5, 2024
The terms of the Editors of the Econometric Society's three journals end June 30, 2025. We are pleased to announce the incoming Editors and to thank the outgoing Editors for their excellent and continuing service.
Econometrica: Since 2019, Guido Imbens has served as the 14th Editor of Econometrica. On July 1, 2025, Marina Halac will become the Editor.
Quantitative Economics: Stéphane Bonhomme has been the Editor of Quantitative Economics since 2021. His successor will be Bernard Salanié.
Theoretical Economics: The Editor of Theoretical Economics since 2021 has been Simon Board. Taking over for him in July 2025 will be Federico Echenique.
Guido, Stéphane, and Simon have been outstanding Editors. We are grateful to them for the work they have done and will continue to do, and we look forward to further congratulating them next year. We believe Marina, Bernard, and Federico will be outstanding successors and we thank them in advance for their service.
Finally, we are grateful to Larry Samuelson for chairing all three search committees, and we thank the search committee members for their hard and fruitful work:
Econometrica: Christian Dustmann, Lars Hansen, Alessandro Lizzeri, George Mailath, Ariel Pakes, Helene Rey, and Elie Tamer.
QE: Kate Ho, Michael Keane, Felix Kubler, Whitney Newey, and Frank Schorfheide.
TE: Jeff Ely, Johannes Horner, Gilat Levy, Meg Meyer, and Ran Spiegler.
