A linear filtering approach for incomplete accounting information models

In this paper we propose a discrete time model for a firm asset value process, in a context of incomplete accounting information. We model the logarithm Z of the firm asset value process as a Markov chain. The debtholders do not have perfect information about the actual value of the firm: they receive only a discrete noisy stream of reports Y. We study the pair (Z,Y) relying on linear filtering techniques. We also characterize the marginal distributions of the filter, discussing some significant properties.