Description: Studies default risk through the two-sided exit problem of a time-homogeneous di§usion process with tax payments of loss-carry-forward type and obtains explicit formulas for the exit probabilities. If the lower boundary is understood as the default threshold, then the nondefault probability is solved as a special case. A sufficient and necessary condition for the tax identity is discovered.

Description: Presented at August 2011 46th Actuarial Research Conference. This paper focuses on mainly focus on the case in which the risk variable follows a distribution function from a max-domain of attraction.