Hedging of defaultable claims in a structural model using a locally risk-minimizing approach

DOI10.1016/J.SPA.2014.04.001zbMATH Open1348.60067arXiv1505.03501OpenAlexW2021510951MaRDI QIDQ740187FDOQ740187

D. Kharzeev

Publication date: 2 September 2014

Published in: Stochastic Processes and their Applications (Search for Journal in Brave)

Abstract: In the context of a locally risk-minimizing approach, the problem of hedging defaultable claims and their Follmer-Schweizer decompositions are discussed in a structural model. This is done when the underlying process is a finite variation Levy process and the claims pay a predetermined payout at maturity, contingent on no prior default. More precisely, in this particular framework, the locally risk-minimizing approach is carried out when the underlying process has jumps, the derivative is linked to a default event, and the probability measure is not necessarily risk-neutral.

Full work available at URL: https://arxiv.org/abs/1505.03501

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zbMATH Keywords

[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=L%EF%BF%BD%EF%BF%BDvy+process&go=Go L��vy process]semimartingalelocal martingalehedging strategy[https://portal.mardi4nfdi.de/w/index.php?title=+Special%3ASearch&search=F%EF%BF%BD%EF%BF%BDllmer-Schweizer+decomposition&go=Go F��llmer-Schweizer decomposition]Galtchouk-Kunita-Watanabe decompositionlocal risk-minimizationdefaultable claims

Mathematics Subject Classification ID

Processes with independent increments; Lévy processes (60G51) Generalizations of martingales (60G48) Financial applications of other theories (91G80)

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Cited In (10)

• A variation of Merton's corporate bond valuation model for firms with illiquid but observable assets
• LOCAL RISK MINIMIZATION OF CONTINGENT CLAIMS SIMULTANEOUSLY EXPOSED TO ENDOGENOUS AND EXOGENOUS DEFAULT TIMES
• Title not available (Why is that?)
• Locally Risk-minimizing Hedging of Insurance Payment Streams
• The Föllmer-Schweizer decomposition: comparison and description
• LOCALLY RISK-MINIMIZING HEDGING FOR EUROPEAN CONTINGENT CLAIMS WRITTEN ON NON-TRADABLE ASSETS WITH COMMON JUMP RISK
• Local risk minimization for vulnerable European contingent claims on nontradable assets under regime switching models
• Locally risk-minimizing hedging of counterparty risk for portfolio of credit derivatives
• STATIC HEDGING OF DEFAULTABLE CONTINGENT CLAIMS: A SIMPLE HEDGING SCHEME ACROSS EQUITY AND CREDIT MARKETS
• Hedging the Risk of Delayed Data in Defaultable Markets

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