PDE approach to valuation and hedging of credit derivatives


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,

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Research Papers in Economics

Last time updated on 06/07/2012

This paper was published in Research Papers in Economics.

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