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Hazard rate for credit risk and hedging defaultable contingent claims


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  • Christophette Blanchet-Scalliet


  • Monique Jeanblanc


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    We provide a concise exposition of theoretical results that appear in modeling default time as a random time, we study in details the invariance martingale property and we establish a representation theorem which leads, in a complete market setting, to the hedging portfolio of a vulnerable claim. Our main result is that, to hedge a defaultable claim one has to invest the value of this contingent claim in the defaultable zero-coupon. Copyright Springer-Verlag Berlin/Heidelberg 2004

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    Bibliographic Info

    Article provided by Springer in its journal Finance and Stochastics.

    Volume (Year): 8 (2004)
    Issue (Month): 1 (January)
    Pages: 145-159

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    Handle: RePEc:spr:finsto:v:8:y:2004:i:1:p:145-159

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    Keywords: Default risk; representation theorem; hedging;


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    Cited by:
    1. Philippe Ehlers & Philipp J. Schoenbucher, 2006. "Background Filtrations andCanonical Loss Processes for Top-Down Models of Portfolio Credit Risk," Swiss Finance Institute Research Paper Series 07-07, Swiss Finance Institute.
    2. Delia Coculescu & Monique Jeanblanc & Ashkan Nikeghbali, 2012. "Default times, no-arbitrage conditions and changes of probability measures," Finance and Stochastics, Springer, vol. 16(3), pages 513-535, July.
    3. Agostino Capponi & Jose Figueroa-Lopez & Jeffrey Nisen, 2011. "Pricing and Semimartingale Representations of Vulnerable Contingent Claims in Regime-Switching Markets," Papers 1110.0403,, revised Feb 2012.
    4. Tomoaki Shouda, 2005. "Dynamical analysis of corporate bonds based on the yield spread term-quality surface," Asia-Pacific Financial Markets, Springer, vol. 12(4), pages 307-332, December.
    5. Christophette Blanchet-Scalliet & Anne Eyraud-Loisel & Manuela Royer-Carenzi, 2008. "Hedging of Defaultable Contingent Claims using BSDE with uncertain time horizon," Papers 0811.4039,, revised Sep 2009.
    6. Blanchet-Scalliet, Christophette & El Karoui, Nicole & Martellini, Lionel, 2005. "Dynamic asset pricing theory with uncertain time-horizon," Journal of Economic Dynamics and Control, Elsevier, vol. 29(10), pages 1737-1764, October.
    7. Christophette Blanchet-Scalliet & Anne Eyraud-Loisel & Manuela Royer-Carenzi, 2010. "Hedging of Defaultable Contingent Claims using BSDE with uncertain time horizon," Post-Print hal-00341431, HAL.


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