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PDE approach to valuation and hedging of credit derivatives

By Tomasz Bielecki, Monique Jeanblanc and Marek Rutkowski


This paper presents a PDE approach in a Markovian setting to hedge defaultable derivatives. The arbitrage price and the hedging strategy for an attainable contingent claim are described in terms of solutions of a pair of coupled PDEs. For some standard examples of defaultable claims, we provide explicit formulae for prices and hedging strategies.Credit derivatives, Hedging, Valuation, PDE approach,

DOI identifier: 10.1080/14697680500149297
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