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 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.
defaultable claims, hedging strategy, locally risk-minimizing, follmer-schweizer decomposition, galtchouk-kunita-watanabe decomposition
2868-2891
Okhrati, Ramin
e8e0b289-be8c-4e73-aea5-c9835190a54a
Balbas, Alejandro
af095c60-b809-481e-8c49-2982c3d9c0fc
Garrido, Jose
f1c4a12e-0754-4aa4-81e9-949325bc7574
September 2014
Okhrati, Ramin
e8e0b289-be8c-4e73-aea5-c9835190a54a
Balbas, Alejandro
af095c60-b809-481e-8c49-2982c3d9c0fc
Garrido, Jose
f1c4a12e-0754-4aa4-81e9-949325bc7574
Okhrati, Ramin, Balbas, Alejandro and Garrido, Jose
(2014)
Hedging of defaultable claims in a structural model
using a locally risk-minimizing approach.
Stochastic Processes and their Applications, 124 (9), .
(doi:10.1016/j.spa.2014.04.001).
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.
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Paper1_8.pdf
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Accepted/In Press date: 3 April 2014
e-pub ahead of print date: 12 April 2014
Published date: September 2014
Keywords:
defaultable claims, hedging strategy, locally risk-minimizing, follmer-schweizer decomposition, galtchouk-kunita-watanabe decomposition
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Local EPrints ID: 357103
URI: http://eprints.soton.ac.uk/id/eprint/357103
ISSN: 0304-4149
PURE UUID: c7cfdb3a-bd52-455f-b534-146b0a9e9ec2
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Date deposited: 04 Oct 2013 12:53
Last modified: 14 Mar 2024 14:55
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Author:
Ramin Okhrati
Author:
Alejandro Balbas
Author:
Jose Garrido
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