Pricing and Hedging Defaultable Claim

Abstract : 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.
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  • HAL Id : hal-00625265, version 2

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Stéphane Goutte, Armand Ngoupeyou. Pricing and Hedging Defaultable Claim. 2011. ⟨hal-00625265v2⟩

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