Zero-recovery default model
= Zero-recovery default model
{title2=$\widehat S_t=\mathbf1_{\{t<\tau\}}e^{\lambda t}S_t$}
For an independent <exponential distribution> <default time> of rate $\lambda$ and a continuous nonnegative <martingale> $S$, this process is a <martingale>. The compensating pre-default factor $e^{\lambda t}$ balances the survival probability $e^{-\lambda t}$. The strict survival inequality gives a <càdlàg> price process.