  In this paper incomplete-information models are developed for the pricing of
securities in a stochastic interest rate setting. In particular we consider
credit-risky assets that may include random recovery upon default. The market
filtration is generated by a collection of information processes associated
with economic factors, on which interest rates depend, and information
processes associated with market factors used to model the cash flows of the
securities. We use information-sensitive pricing kernels to give rise to
stochastic interest rates. Semi-analytical expressions for the price of
credit-risky bonds are derived, and a number of recovery models are constructed
which take into account the perceived state of the economy at the time of
default. The price of European-style call bond options is deduced, and it is
shown how examples of hybrid securities, like inflation-linked credit-risky
bonds, can be valued. Finally, a cumulative information process is employed to
develop pricing kernels that respond to the amount of aggregate debt of an
economy.
