  In the aftermath of the global financial crisis, much attention has been paid
to investigating the appropriateness of the current practice of default risk
modeling in banking, finance and insurance industries. A recent empirical study
by Guo et al.(2008) shows that the time difference between the economic and
recorded default dates has a significant impact on recovery rate estimates. Guo
et al.(2011) develop a theoretical structural firm asset value model for a firm
default process that embeds the distinction of these two default times. To be
more consistent with the practice, in this paper, we assume the market
participants cannot observe the firm asset value directly and developed a
reduced-form model to characterize the economic and recorded default times. We
derive the probability distribution of these two default times. The numerical
study on the difference between these two shows that our proposed model can
both capture the features and fit the empirical data.
