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Mean variance hedging under defaults risk.

Abstract : We solve a Mean Variance Hedging problem in an incomplete market where multiple defaults can appear. For this, we use a default-density modeling approach. The global market information is formulated as progressive enlargement of a default-free Brownian filtration and the dependence of default times is modeled by a conditional density hypothesis. We prove the quadratic form of each value process between consecutive defaults times and solve recursively systems of quadratic backward stochastic differential equations. Moreover, we obtain an explicit formula of the optimal trading strategy. We illustrate our results with some specific cases.
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Contributor : Stéphane Goutte <>
Submitted on : Thursday, July 26, 2012 - 10:40:53 AM
Last modification on : Wednesday, December 9, 2020 - 3:07:46 PM
Long-term archiving on: : Friday, December 16, 2016 - 3:19:47 AM


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  • HAL Id : hal-00720912, version 1


Sebastien Choukroun, Stéphane Goutte, Armand Ngoupeyou. Mean variance hedging under defaults risk.. 2012. ⟨hal-00720912⟩



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