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Pricing and Hedging Defaultable Claim

Stéphane Goutte 1, Armand Ngoupeyou 1

(21/09/2011)

We study the pricing and the hedging of claim Ψ which depends of the default times of two firms A and B. In fact, we assume that we can not buy or sell any default- able bond from the firm B but we can trade a defaultable bond of the firm A. Since the default times of the two firms are correlated, our aim is to find the best price and hedg- ing of Ψ using bond of the firm A. Hence we solve this problem in two cases: first in a Markov framework using indifference price and solving a system of Hamilton Jacobi Bellman equation; and in a secondly in a more general framework (mean-variance tradeoff process non deterministic) using the mean variance hedging approach and solving backward stochastic differential equations.

1 :	Laboratoire de Probabilités et Modèles Aléatoires (LPMA)
	CNRS : UMR7599 – Université Pierre et Marie Curie [UPMC] - Paris VI – Université Paris VII - Paris Diderot

Domaine

:

Mathématiques/Probabilités

Mots Clés : Default and Credit risk – Hamilton Jacobi Bellman and Backward Differential equations – Mean variance hedging

hal-00625265, version 2

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Contributeur : Stéphane Goutte <>

Soumis le : Jeudi 6 Septembre 2012, 10:42:35

Dernière modification le : Samedi 8 Septembre 2012, 08:41:12