Exact calibration of structural models via time-change

RESUMO

We propose a general structural approach to model a default time as the first-passage time of a firm-value process below a debt barrier that complies with a pre-specified survival probability curve, using a time-change technique. We show the AT1P model of Brigo, Morini and Tarenghi can be regarded as the first-passage time of a time-changed drifted Brownian motion, offering an immediate calibration to perfectly match a target survival curve.