A unified approach to pricing and risk management of equity and credit risk
From MaRDI portal
Publication:2349596
Abstract: We propose a unified framework for equity and credit risk modeling, where the default time is a doubly stochastic random time with intensity driven by an underlying affine factor process. This approach allows for flexible interactions between the defaultable stock price, its stochastic volatility and the default intensity, while maintaining full analytical tractability. We characterise all risk-neutral measures which preserve the affine structure of the model and show that risk management as well as pricing problems can be dealt with efficiently by shifting to suitable survival measures. As an example, we consider a jump-to-default extension of the Heston stochastic volatility model.
Recommendations
- A unified framework for pricing credit and equity derivatives
- Credit derivatives pricing with stochastic volatility models
- Time-changed Markov processes in unified credit-equity modeling
- Systematic equity-based credit risk: A CEV model with jump to default
- Pricing and hedging in affine models with possibility of default
Cites work
- scientific article; zbMATH DE number 2231189 (Why is no real title available?)
- A YIELD‐FACTOR MODEL OF INTEREST RATES
- A closed-form solution for options with stochastic volatility with applications to bond and currency options
- A general version of the fundamental theorem of asset pricing
- A jump to default extended CEV model: an application of Bessel processes
- A note on the Dai-Singleton canonical representation of affine term structure models
- Affine processes and applications in finance
- Affine processes for dynamic mortality and actuarial valuations
- Affine processes on positive semidefinite matrices
- Credit risk and incomplete information: A filtering framework for pricing and risk management
- Credit risk and incomplete information: filtering and EM parameter estimation
- Credit risk: Modelling, valuation and hedging
- DEFAULT RISK AND DIVERSIFICATION: THEORY AND EMPIRICAL IMPLICATIONS
- Default times, no-arbitrage conditions and changes of probability measures
- Equivalent and absolutely continuous measure changes for jump-diffusion processes
- FORWARD START OPTIONS UNDER STOCHASTIC VOLATILITY AND STOCHASTIC INTEREST RATES
- HEDGING UNDER THE HESTON MODEL WITH JUMP-TO-DEFAULT
- Intermediate Probability
- Local volatility enhanced by a jump to default
- On changes of measure in stochastic volatility models
- Pricing Options on Defaultable Stocks*
- Pricing and hedging in affine models with possibility of default
- SOLVABLE AFFINE TERM STRUCTURE MODELS
- Systematic equity-based credit risk: A CEV model with jump to default
- Term-structure models. A graduate course
- The shape and term structure of the index option smirk: why multifactor stochastic volatility models work so well
- Transform Analysis and Asset Pricing for Affine Jump-diffusions
Cited in
(7)- A unified framework for pricing credit and equity derivatives
- A two price theory of financial equilibrium with risk management implications
- scientific article; zbMATH DE number 5247435 (Why is no real title available?)
- Systematic equity-based credit risk: A CEV model with jump to default
- From insurance risk to credit portfolio management: a new approach to pricing CDOs
- Computing the survival probability in the Madan-Unal credit risk model: application to the CDS market
- A revised version of the Cathcart \& El-Jahel model and its application to CDS market
This page was built for publication: A unified approach to pricing and risk management of equity and credit risk
Report a bug (only for logged in users!)Click here to report a bug for this page (MaRDI item Q2349596)
