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

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

In the context of a locally risk-minimizing approach, the problem of hedging defaultable claims and their Föllmer-Schweizer decompositions are discussed in a structural model. This is done when the underlying process is a finite variation Lévy process and the claims pay a predetermined payout at maturity, contingent on no prior default. More precisely, in this particular framework, the locally ...

Hedging of Defaultable Claims

The goal of these lectures is to present a survey of recent developments in the practically important and challenging area of hedging credit risk. In a companion work, Bielecki et al. (2004a), we presented techniques and results related to the valuation of defaultable claims. It should be emphasized that in most existing papers on credit risk, the risk-neutral valuation of defaultable claims is...

Hazard rate for credit risk and hedging defaultable contingent claims

We provide a concise exposition of theoretical results that appear in modeling default time as a random time, we study in details the invariance martingale property and we establish a representation theorem which leads, in a complete market setting, to the hedging portfolio of a vulnerable claim. Our main result is that, to hedge a defaultable claim one has to invest the value of this contingen...

Indifference Pricing and Hedging of Defaultable Claims

Mean-variance Hedging of Defaultable Claims