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Pricing Defaultable Securities under Actual Probability Measure

Author

Listed:
  • Feng Jianfen
  • Yu Mei

    (School of Banking and Economics, UIBE, Beijing100029, China)

  • Chen Dianfa

    (School of Economics, Nankai University, Tianjin300071, China)

Abstract

In this paper, a new approach is developed to estimate the value of defaultable securities under the actual probability measure. This model gives the price framework by means of the method of backward stochastic differential equation. Such a method solves some problems in most of existing literatures with respect to pricing the credit risk and relaxes certain market limitations. We provide the price of defaultable securities in discrete time and in continuous time respectively, which is favorable to practice to manage real credit risk for finance institutes.

Suggested Citation

  • Feng Jianfen & Yu Mei & Chen Dianfa, 2014. "Pricing Defaultable Securities under Actual Probability Measure," Journal of Systems Science and Information, De Gruyter, vol. 2(4), pages 313-334, August.
    • Handle: RePEc:bpj:jossai:v:2:y:2014:i:4:p:313-334:n:3
    DOI: 10.1515/JSSI-2014-0313
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    References listed on IDEAS

    as
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    7. Dariusz Gatarek & Juliusz Jabłecki, 2013. "A model for dependent defaults and pricing contingent claims with counterparty risk," NBP Working Papers 150, Narodowy Bank Polski.
    8. P. Collin-Dufresne & R. Goldstein & J. Hugonnier, 2004. "A General Formula for Valuing Defaultable Securities," Econometrica, Econometric Society, vol. 72(5), pages 1377-1407, September.
    Full references (including those not matched with items on IDEAS)

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